Can a Canadian Who Lives and Works in the U.S. Contribute To an RRSP?

If you are a Canadian citizen but you live and work in the United States, then you may not contribute to a registered retirement savings plan (RRSP) account. RRSP contribution rules allow you to contribute a certain percentage of your earned income to your account. But because you are employed and reside in the U.S., your income is not from a Canadian source and you would not be eligible for any tax deductions in Canada.

Understanding Registered Retirement Savings Plans (RRSPs)

An RRSP is a retirement savings-and-investment vehicle for employees and the self-employed in Canada. Registered retirement savings plans were created in 1957 as part of the Canadian Income Tax Act. They are registered with the Canadian government and overseen by the Canada Revenue Agency (CRA), which sets rules governing annual contribution limits, contribution timing, and what assets are allowed as investments.

How RRSPs Work

As a Canadian, you may put money into an RRSP before taxes and it grows tax-free until withdrawal, at which time it is taxed at the marginal rate. RRSPs have many features in common with 401(k) plans in the United States, but there are also some key differences.

If I’m a Legal U.S. Resident but Still a Canadian Citizen?

Although you are not eligible to contribute to your RRSP while living and working in the U.S., you are still allowed to keep your RRSP to let your investments grow without being subject to tax in Canada. As a U.S. resident, you can elect to defer income generated from your investments in your RRSP until it is withdrawn by filling out a tax return.

And if I Choose To Emigrate to the U.S.?

If you are emigrating from Canada, you should maximize your contribution in the year that you leave the country. The government gives you 60 days after year-end to make this contribution.

Also, if you have taken any money out of your RRSP under the Home Buyers’ Plan (HBP) or other plans, then you should arrange to repay that amount before becoming a non-resident. Otherwise, that outstanding amount might be taxable in the year that you emigrate.

How About a Traditional U.S. IRA?

If you plan on staying in the U.S. for an extended period, you may want to look into opening an individual retirement account (IRA). You can open an IRA in the United States as long as you are a legal U.S. resident with a valid Social Security Number.

You may defer taxes on the contributions you make to an IRA from income earned in the U.S. In 2021 and 2022, the limit on annual contributions to an IRA is $6,000, and the additional catch-up contribution limit for individuals aged 50 and older is $1,000. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions.

The Bottom Line

Canadian citizens that live and work in the U.S. are not allowed to contribute to a registered retirement savings plan (RRSP) in Canada. The reason is that the income earned is in the U.S. and not in Canada. As a legal U.S. resident, you are allowed to open an IRA, which will function as a retirement account in place of an RRSP.