Moving to the US With an RRSP: Keep It, Collapse It, or Convert It — A $200K Decision

You're a GTA professional — maybe a tech lead in Mississauga, a project manager in Markham, a finance analyst in downtown Toronto — and you've taken a job in the US. You have $200,000 sitting in an RRSP. The question that keeps every cross-border mover awake: do you cash it out before you leave, or do you leave it behind?

The short answer: for most Canadians moving to the US, leaving the RRSP intact is the right call. The RRSP is exempt from Canada's departure tax. The growth continues tax-deferred in both countries under the Canada-US Tax Treaty. And collapsing it before departure means paying full Canadian income tax at your marginal rate — up to 53.53% in Ontario — on a $200,000 lump sum you didn't need to touch.

But “leave it” isn't the end of the conversation. You need to understand the withholding rates when you eventually withdraw, the US reporting obligations you pick up the day you become a US tax resident, and the state-tax wrinkles that can shift the math. Below: the three options on a $200,000 RRSP, with the dollar math for each.

The Departure Tax — And Why Your RRSP Is Exempt

When you become a non-resident of Canada, the CRA triggers a deemed disposition on most of your property under section 128.1 of the Income Tax Act. This is the departure tax. You're treated as if you sold your non-registered investments, stock options, and certain real estate interests at fair market value on the day you left. Any accrued capital gain becomes taxable on your final Canadian return.

The key exception: deferred income plans are carved out. Under section 128.1(4)(b), your RRSP, RRIF, DPSP, and RPP are all excluded from the deemed disposition. The logic: Canada will collect its tax when you eventually withdraw from these accounts, via Part XIII non-resident withholding. There's no need to force a tax event at departure.

This exemption is the single most important fact for your RRSP decision: leaving Canada does not trigger any tax on your RRSP. The $200,000 stays intact, continues to grow, and Canada only collects when you withdraw.

Three Options for Your $200,000 RRSP

Option A: Collapse It Before Departure

Withdraw the full $200,000 while you're still a Canadian resident, in the same year you're leaving. The withdrawal is added to your regular employment income on your final Canadian return.

The math (Ontario resident, $150,000 salary already earned that year):

You walk away with roughly $97,000 from a $200,000 RRSP. You also lose the tax-sheltered compounding on that money forever. And because the withdrawal is on your Canadian return (you were still a resident when it happened), the US has no claim on it — but you also get no US foreign tax credit for the Canadian tax paid before you arrived.

Option B: Keep It — Lump-Sum Withdrawal Later as a US Resident

You leave the RRSP intact, move to the US, and withdraw the full $200,000 in a future year when you're a US tax resident and a non-resident of Canada.

Canadian side: Canada withholds 25% on lump-sum RRSP withdrawals by non-residents under Part XIII of the ITA (section 212(1)(l)). On $200,000: $50,000 withheld. You receive $150,000 net from the Canadian institution.

US side: The $200,000 is reported as ordinary income on your Form 1040. You claim a foreign tax credit (Form 1116) for the $50,000 of Canadian withholding. Whether the FTC fully offsets your US tax depends on your total income and the FTC limitation:

Even in the worst case (high US bracket + California state tax), the combined tax on a lump-sum withdrawal as a US resident is $20,000–$25,000 less than collapsing pre-departure at Ontario's top rate. In a no-income-tax state (Texas, Florida, Washington, Nevada), the savings are closer to $40,000–$50,000.

Option C: Keep It — Convert to RRIF and Draw Down Gradually

You leave the RRSP in Canada, let it grow, and eventually convert to a RRIF (required by December 31 of the year you turn 71 under Canadian law). As a non-resident, you take periodic withdrawals — either the RRIF mandatory minimums or planned annual amounts — and claim the 15% treaty-reduced withholding rate on periodic pension payments.

Why 15% instead of 25%? Article XVIII(2) of the Canada-US Tax Treaty caps the withholding on periodic pension payments at 15%. RRIF minimum withdrawals qualify as periodic payments. You file Form NR301 with the Canadian financial institution to claim the reduced rate. Lump sums and amounts exceeding twice the RRIF minimum remain at 25%.

Worked example — $200,000 RRSP held until age 71, converted to RRIF:

Assume the RRSP grows at 5% net for 20 years (age 51 to 71). Balance at conversion: roughly $530,000. At age 71, the RRIF minimum withdrawal rate is 5.28% (CRA prescribed factor, ITA Reg. 7308):

At each withdrawal, the 15% Canadian withholding is credited against your US tax via Form 1116. If your effective US federal rate on that income is close to or below 15%, the FTC covers the entire US liability on the withdrawal — meaning your total tax rate on each RRIF payment is roughly 15%, not the 25% lump-sum rate and certainly not the 50%+ you'd have paid collapsing in Ontario.

Side-by-Side: The $200,000 RRSP Decision

The trade-off is clear: Option A is simple but expensive. Option C is complex but preserves the most after-tax wealth. Option B sits in the middle. Most cross-border tax advisors recommend Option B or C depending on your timeline and tolerance for ongoing compliance.

Your TFSA Is a Different Story Entirely

Unlike the RRSP, the TFSA has no treaty protection in the US. There is no Article XVIII equivalent for TFSAs. The IRS does not recognize the TFSA's tax-free status — it may classify it as a foreign grantor trust, which triggers Forms 3520 and 3520-A (with penalties starting at the greater of US$10,000 or 35% of the account balance for non-filing).

On the Canadian side, you can keep a TFSA as a non-resident, but you earn no new contribution room while non-resident, and any contributions made after emigrating are penalized at 1% per month.

The standard advice: collapse your TFSA before departing Canada. The withdrawal is tax-free in Canada (that's the whole point of a TFSA). You eliminate the US trust-reporting headache. The 2026 cumulative TFSA limit is $109,000 — that's potentially a large sum to simplify. If you return to Canada later, your contribution room is restored.

State-Tax Wrinkles: Where You Move Matters

The US has no federal treaty override on state income taxes. Your RRSP withdrawal is ordinary income for state purposes in every state that taxes income. The foreign tax credit you claim on your federal 1040 does not automatically reduce your state tax liability.

If you're moving to California with a $200,000 RRSP and plan to withdraw it as a lump sum: the 25% Canadian withholding covers most of the US federal tax via FTC, but California adds roughly $19,000–$20,000 in state income tax with no offset for the Canadian withholding. That's where Option C (gradual RRIF drawdown at 15% treaty rate, spread across lower-bracket years) becomes especially valuable.

US Reporting Obligations on a Canadian RRSP

If you keep the RRSP, you pick up US reporting obligations the year you become a US tax resident. These are disclosure requirements — they don't trigger additional tax, but the penalties for missing them are severe. For the full breakdown, see our FBAR + Form 8938 checklist. The summary:

• FBAR (FinCEN 114): Required if the aggregate maximum value of all your foreign financial accounts exceeds US$10,000 at any point during the year. A $200,000 RRSP alone is 20x the threshold. File electronically with FinCEN by April 15 (auto-extended to October 15).
• Form 8938 (FATCA): Required if your specified foreign financial assets exceed US$50,000 at year-end or US$75,000 at any time (single filer, living in the US). File with your 1040. A $200,000 RRSP (~US$146,000) triggers this for any single filer living in the US.
• Schedule B, Part III: Check “Yes” on Question 7a (foreign financial accounts). Enter “Canada.”
• Form 8833: NOT required for the RRSP deferral since Rev. Proc. 2014-55 made it automatic. Only needed if you take other treaty positions. See our Form 8833 guide.

FBAR penalties run up to US$10,000 per account per year for non-willful violations, and the greater of US$100,000 or 50% of the account balance for willful violations. On a $200,000 RRSP unreported for three years, the non-willful exposure is US$30,000. The forms take 15 minutes to file. The cost of not filing can exceed the account balance.

When Collapsing Pre-Departure Actually Makes Sense

Option A (collapse before leaving) is usually the worst financial outcome. But there are exceptions:

• Low-income departure year. If you're leaving Canada mid-year with little or no employment income (sabbatical, early retirement, gap between jobs), the RRSP withdrawal stacks on top of minimal income. At $60,000 or less of total income in Ontario, your marginal rate on the withdrawal is roughly 29–37% — potentially lower than the 25% non-resident withholding rate you'd face later, because the FTC may not fully offset your US tax. Run the numbers.
• Small RRSP balance. On a $15,000 RRSP, the annual US compliance cost (cross-border CPA fees for FBAR, 8938, and state coordination) can exceed the tax savings of keeping it. Collapse and simplify.
• You never plan to return to Canada. A permanent move simplifies the argument for collapsing, especially if combined with a low-income year. But even then, the 15% treaty rate on periodic RRIF payments is hard to beat.
• Estate planning complexity. An RRSP held by a non-resident at death can create a dual-country tax event — Canada withholds 25% on the deemed withdrawal, and the US taxes it on the final 1040. If your estate plan is already complex (blended family, cross-border real estate), simplifying the registered account might be worth the upfront tax cost.

Pre-Departure RRSP Checklist for Canadians Moving to the US

The Bottom Line on Your $200,000 RRSP

The RRSP is one of the few Canadian assets that crosses the border cleanly. No departure tax. Treaty-protected deferral in the US. A clear withholding-and-credit mechanism for eventual withdrawals. The cost of collapsing it early — $100,000+ in unnecessary tax on a $200,000 account, plus decades of lost tax-deferred growth — is almost never justified by the convenience of simplifying your compliance.

Keep it. File the FBAR. File Form 8938. Convert to a RRIF at 71. Take periodic withdrawals at the 15% treaty rate with the foreign tax credit offsetting your US liability. The annual compliance is an inconvenience. The tax savings are measured in tens of thousands of dollars.

The exception set is narrow: low-income departure year, very small balance, or an estate plan that can't tolerate the cross-border complexity. For the typical GTA professional moving to a US tech hub or financial centre with a six-figure RRSP — leave it behind, and do the paperwork.