RRSP and US Taxes: What Every Dual Citizen Must Know in 2026

If you are a US citizen or green card holder living in Canada, your Registered Retirement Savings Plan is not as straightforward as your Canadian neighbors think. While Canadians enjoy tax-deferred growth inside an RRSP without a second thought, Americans in Canada must navigate a parallel set of IRS reporting obligations that can turn this retirement vehicle into a compliance headache — or worse, a source of unexpected tax bills. The good news: the US-Canada Tax Treaty provides a mechanism to preserve the tax deferral, but only if you take the right steps.

How the IRS Views Your RRSP

By default, the IRS treats your RRSP as a foreign grantor trust. That means the investment income earned inside the account — interest, dividends, and capital gains — is taxable to you in the year it is earned, even though you have not withdrawn a cent. This is the opposite of how the CRA treats the account, where growth is tax-deferred until withdrawal.

Without proper planning, a US citizen with a $200,000 RRSP earning 7% annually could face an additional US tax bill of $2,000 to $4,000 per year on phantom income — gains sitting inside the RRSP that Canada does not tax yet. Over a 20-year career, that adds up to tens of thousands of dollars in unnecessary tax payments.

This is where Article XVIII(7) of the US-Canada Tax Treaty becomes essential. It allows US persons to elect to defer US taxation on RRSP income, aligning the US treatment with the Canadian treatment. But this election is not automatic.

Making the Treaty Election: What Changed After 2014

Before 2014, US taxpayers had to file Form 8891 (US Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans) every year to elect treaty benefits for their RRSP. The IRS eliminated this form effective for tax years beginning after December 31, 2012, through Revenue Procedure 2014-55.

Today, the election is considered automatically made if you meet these conditions:

• You are a beneficiary of an RRSP or RRIF
• You have not previously taken a position inconsistent with deferral (i.e., you have not reported the annual accrued income on a prior US return)
• You file your US tax return on time, including extensions

However, if you have never filed a US tax return while holding an RRSP, or if you previously reported the income incorrectly, you may need to use the IRS Streamlined Filing Compliance Procedures to get back into compliance. The offshore penalty under the streamlined domestic program is 5% of the highest account balance over six years. For a $300,000 RRSP, that is a $15,000 penalty — though the streamlined foreign offshore procedures carry zero penalties if you qualify as a non-willful filer living abroad.

RRSP Contributions: The Deductibility Question

In Canada, your RRSP contributions are deductible against your income, reducing your Canadian tax bill. On the US side, the treatment is more nuanced.

Under Article XVIII(2) of the Treaty, RRSP contributions may be deductible on your US return, but only to the extent that:

• The contributions are attributable to services performed in Canada (Canadian-source earned income)
• The contributions are made by you or on your behalf by your Canadian employer
• The deduction does not exceed the limits that would apply to a comparable US plan (the lesser of the RRSP limit or the US 401(k) limit)

For the 2026 tax year, the RRSP contribution limit is CAD $32,490 (the 2025 limit; the 2026 indexed amount is expected by late 2025). The US 401(k) elective deferral limit is USD $23,500 for 2025 (2026 limits not yet announced at time of writing). Because exchange rates fluctuate, the effective cap for the US deduction depends on the year-end rate.

If you are self-employed in Canada or earn only US-source income while contributing to an RRSP, the deductibility becomes even more complex. In many cases, contributions made from US-source income are not deductible on the US return, creating a mismatch where you get a Canadian deduction but no US benefit.

Reporting Requirements: FBAR, FATCA, and More

Beyond the income tax return itself, your RRSP triggers several information reporting obligations:

FinCEN Form 114 (FBAR): If the aggregate value of all your foreign financial accounts — including your RRSP, TFSA, Canadian bank accounts, and investment accounts — exceeds USD $10,000 at any point during the year, you must file an FBAR electronically through the BSA E-Filing System. The deadline is April 15, with an automatic extension to October 15. Willful failure to file can result in penalties up to the greater of $100,000 or 50% of the account balance per violation.

Form 8938 (FATCA): If you meet the filing thresholds under the Foreign Account Tax Compliance Act — $200,000 on the last day of the year or $300,000 at any point for single filers living abroad — you must report your RRSP on Form 8938 attached to your tax return. The failure-to-file penalty starts at $10,000 and can reach $50,000 for continued non-compliance.

Form 3520/3520-A: Because the IRS classifies the RRSP as a foreign trust (absent the treaty election), there has been historical confusion about whether Form 3520 is required. Under current IRS guidance, if you properly make the treaty election, you are generally not required to file Form 3520 or 3520-A for the RRSP. However, this remains a gray area that the IRS has not definitively resolved in all situations. We recommend consulting a cross-border specialist.

RRSP Withdrawals: Navigating Dual Taxation

When you withdraw from your RRSP, both countries want their share:

• Canada: The withdrawal is included in your Canadian income. Your financial institution withholds tax at source — 10% for withdrawals up to CAD $5,000, 20% for $5,001 to $15,000, and 30% for amounts over $15,000. Non-residents face a flat 25% withholding (reduced to 15% under the Treaty for periodic payments).
• US: The withdrawal is included in your US gross income as pension/annuity income. If you made the treaty election and deferred US tax on the accrued income over the years, the full withdrawal amount is taxable.

To avoid double taxation, you claim a Foreign Tax Credit on Form 1116 for the Canadian tax paid on the withdrawal. In most cases, this eliminates or substantially reduces the US tax on the same income. However, timing differences, exchange rate fluctuations, and different tax brackets in each country can create situations where the credit does not fully offset the US liability.

One scenario where problems arise: if you withdraw from your RRSP in a year when your Canadian income is low (and thus your Canadian tax rate is low), the Foreign Tax Credit may not fully cover the US tax, especially if you have significant other US-source income pushing you into a higher US bracket.

RRSP to RRIF Conversion at Age 71

Canadian law requires you to convert your RRSP to a Registered Retirement Income Fund by December 31 of the year you turn 71. The RRIF mandates minimum annual withdrawals based on your age, starting the year after conversion.

For US tax purposes, the RRIF is treated similarly to the RRSP under the Treaty — the deferral election carries over. However, the mandatory minimum withdrawals trigger annual taxable events in both countries. Planning the conversion timing and withdrawal strategy can significantly impact your combined tax burden over retirement.

If you are a US citizen who has moved back to the United States before age 71, you face an additional wrinkle: you are now a non-resident of Canada, and RRIF withdrawals are subject to Canadian non-resident withholding tax. The Treaty generally limits this withholding to 15% for periodic payments, but lump-sum withdrawals may be subject to 25%.

Investment Choices Inside Your RRSP: A US Tax Consideration

Even with the treaty election in place, what you hold inside your RRSP matters for US purposes. Canadian mutual funds are classified as Passive Foreign Investment Companies (PFICs) by the IRS. While the treaty election defers the taxation of income inside the RRSP, there is ongoing debate about whether PFIC reporting (Form 8621) is required for investments held within a treaty-deferred RRSP.

The safest approach — and the one we recommend to our clients — is to hold US-listed ETFs or individual stocks inside your RRSP where possible. This sidesteps the PFIC issue entirely. Many Canadian brokerages (including Questrade, Interactive Brokers, and TD Direct Investing) allow you to hold US-listed securities in your RRSP.

Action Steps for 2026

If you are a US citizen or green card holder with a Canadian RRSP, here is what you should do this year:

1. Confirm your treaty election is in place. Review your prior US returns to ensure you have not inadvertently reported RRSP income annually. If you have, a corrective filing may be needed.
2. File your FBAR by April 15, 2026 (or by the automatic October 15 extension). Include all foreign accounts, not just the RRSP.
3. Check your Form 8938 thresholds. If your RRSP and other foreign assets exceed the applicable threshold, file Form 8938 with your 1040.
4. Review your RRSP investments. If you hold Canadian mutual funds, consider transitioning to US-listed ETFs to avoid PFIC complications.
5. Get professional cross-border tax advice. The interaction between IRS rules, CRA rules, and the Treaty is complex enough that DIY approaches frequently result in errors, missed elections, or overpaid taxes.