401(k), IRA & Roth IRA in Canada
Moving to Canada with U.S. retirement accounts — or already here? Every U.S. account has a Canadian twin, and the tax treaty stops you being taxed twice. Here’s the map, the rules, and two calculators for your own numbers.
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401(k) / Traditional IRA withdrawal tax
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Roth IRA tax-free growth projection
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Every U.S. account has a Canadian twin
The fastest way to understand your U.S. accounts in Canada is to map each one to the Canadian account you already understand. The tax logic then follows: a 401(k) or Traditional IRA behaves like an RRSP (pre-tax in, taxed out), and a Roth IRA behaves like a TFSA (after-tax in, tax-free out).
| U.S. account | Canadian equivalent | Notes |
|---|---|---|
| Roth IRA | TFSA | After-tax money in, tax-free growth and withdrawals. Closest Canadian analog to a Roth. |
| Traditional IRA / 401(k) | RRSP | Pre-tax money in, taxed on withdrawal. Employer 401(k) matching is like a group RRSP. |
| Roth 401(k) | TFSA (via a Roth IRA rollover) | After-tax employer plan; usually rolled to a Roth IRA, whose Canadian analog is the TFSA. |
| SEP / SIMPLE IRA | RRSP | Self-employed pre-tax retirement savings; treated like other IRAs under the treaty. |
Moving to Canada does not “convert” anything. The U.S. account stays where it is, keeps its U.S. character, and Canada taxes the withdrawals under the Canada–U.S. tax treaty.
Two countries, one withdrawal — but no double tax
When you withdraw from a 401(k) or Traditional IRA as a Canadian resident, the U.S. takes its cut first. A periodic pension payment is capped at 15% U.S. withholding under Article XVIII of the treaty; a lump-sum distribution does not get that treaty rate and is withheld at 30%. Canada then taxes the withdrawal at your marginal rate but gives you a foreign tax credit for the U.S. tax, so the income is taxed once in total — at roughly the higher of the two countries’ rates.
Worked example — a 401(k) withdrawal
Say you’re 67 (so no early-withdrawal penalty applies) and take a $40,000 periodic 401(k) payment while living in Ontario with $50,000 of other income. The U.S. withholds 15% ($6,000) at source. Canada taxes the same $40,000 at your marginal rate, adding about $11,146 of Canadian tax — but the $6,000 already paid to the U.S. is a foreign tax credit against that, leaving about $5,146 still owed to Canada. Total across both countries is about $11,146 (27.9% of the withdrawal), not $6,000 + $11,146. The credit is what stops it being taxed twice in full.
Watch the 10% penalty and the lump-sum trap
Taking money out before age 59½ triggers the IRS 10% early-withdrawal penalty, and Canada gives no credit for it — so it is pure extra cost, on top of both countries’ income tax. Large lump sums also stack on your other income and can push you into a higher Canadian bracket, and past the OAS clawback threshold if you’re over 65. Spreading withdrawals out, or structuring them as periodic payments, usually lowers the total bill substantially. For the official rules see IRS: 401(k) plans and IRS Publication 597.
The Roth election is the whole game
A Roth IRA’s tax-free status in Canada is not automatic. It depends on filing the one-time Article XVIII(7) election with the CRA — generally by the filing deadline for the year you became a Canadian resident — and never making a Canadian contribution afterwards. Get that right and Canada honours the U.S. tax-free treatment. Get it wrong and the growth from your first Canadian contribution onward can become taxable.
Worked example — what the election is worth
Say your Roth IRA holds $50,000 and you expect a 6% average annual return over 15 years, with the election intact and no Canadian contributions. It projects to about $119,828 — all of it tax-free in Canada. If a Canadian contribution broke the election and that same $69,828 of growth became taxable at a 29.65% marginal rate (Ontario, $60,000 of other income), the Canadian tax hit would be roughly $20,704. That’s the value of a letter you file once. For the underlying rules see CRA Folio S5-F3-C1 and IRS: Roth IRAs.
Where this fits in the bigger plan
U.S. accounts don’t sit outside your Canadian retirement — they sit inside it. A 401(k) withdrawal is taxable Canadian income, so it counts toward your bracket, your OAS clawback exposure and your GIS entitlement exactly like a RRIF withdrawal would. A Roth, with the election filed, counts toward none of them, which makes it the single best account to draw from in a year when you’re close to a threshold. Add your U.S. balances and U.S.-person status to your retirement profile and the retirement planner will factor them into the whole projection.
One caveat worth stating plainly: cross-border tax is the area where general-purpose calculators are least reliable, because outcomes turn on residency dates, plan type, citizenship, and how a distribution is characterised. Use these estimates to understand the shape of the problem, then take the actual filing to a cross-border accountant.
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Frequently asked questions
Can I keep my U.S. retirement accounts when I move to Canada?
Yes. You can generally keep your 401(k), IRA, and Roth IRA in the U.S. after moving to Canada, and they keep their tax-deferred or tax-free growth. The Canada–U.S. tax treaty coordinates how each country taxes the income so you are not taxed twice. What changes is how withdrawals are taxed and, for Roth IRAs, the need to file a one-time treaty election.
What is the Canadian equivalent of a 401(k)?
The closest Canadian equivalent of a 401(k) or Traditional IRA is the RRSP. Both take pre-tax contributions, grow tax-deferred, and are fully taxable when you withdraw. An employer 401(k) match is similar to a Group RRSP. A Roth IRA, by contrast, is closer to a TFSA.
What is the Canadian equivalent of a Roth IRA?
The TFSA is the closest Canadian equivalent of a Roth IRA. Both are funded with after-tax dollars, grow completely tax-free, and allow tax-free withdrawals. The main differences are the contribution rules: TFSA room is set annually by the CRA and accumulates from age 18, while Roth IRA contributions have U.S. income limits.
How much tax will I pay to withdraw my 401(k) as a Canadian resident?
It depends on how you take it and on your Canadian income. A periodic pension payment gets the 15% treaty withholding rate; a lump sum does not, and is withheld at 30% by the U.S. On top of U.S. withholding, Canada taxes the withdrawal at your marginal rate and credits the U.S. tax already paid. If you are under 59½, the IRS also adds a 10% early-withdrawal penalty that is not creditable in Canada. You report the income on Canadian line 11500.
Is a Roth IRA tax-free in Canada?
It can be. Canada will continue to treat a Roth IRA as tax-free if you file a one-time election under paragraph 7 of Article XVIII of the Canada–U.S. treaty and make no contributions to the Roth after becoming a Canadian resident. With the election in place and no Canadian contributions, the income and growth stay tax-free in Canada, mirroring the U.S. treatment. See CRA Folio S5-F3-C1, Taxation of a Roth IRA.
What is the Roth IRA treaty election, and how do I make it?
It is a one-time written election to defer Canadian tax on income accruing in your Roth IRA, made under Article XVIII(7) of the Canada–U.S. treaty. You file a signed letter with the CRA (generally by the filing deadline for the year you became a Canadian resident) identifying the Roth and electing to defer taxation for all years. Once filed, and as long as you make no Canadian contributions, the Roth keeps its tax-free character in Canada.
What happens if I contribute to my Roth IRA after moving to Canada?
Contributing after you become a Canadian resident is treated as a 'Canadian contribution.' From that point, the portion of the Roth attributable to Canadian contributions — and the growth on it — stops being a pension under the treaty and can become taxable in Canada. That is why the standard advice is to file the election and stop contributing to the Roth once you live in Canada.
Do I pay the 10% early-withdrawal penalty if I live in Canada?
Yes. The IRS 10% additional tax on distributions before age 59½ applies to U.S. retirement plans regardless of where you live, and Canada gives no foreign tax credit for it. That makes early withdrawals especially expensive for Canadian residents. Waiting until 59½, or using substantially equal periodic payments, can avoid the penalty.
Should I roll my 401(k) into an RRSP after moving to Canada?
It is sometimes possible, but it is complex: you must take a taxable U.S. distribution, the U.S. withholds tax, and you need enough foreign tax credit and RRSP room to offset the Canadian tax. Done wrong you can be double-taxed, or lose the 10% penalty as a permanent cost. Many people simply leave the 401(k) in the U.S. Model the numbers and get cross-border tax advice first.
Should I move my Roth IRA into a TFSA?
Usually not by withdrawing and re-contributing. A Roth IRA already grows tax-free in Canada with the treaty election, so cashing it out to fund a TFSA gains little and can create U.S. tax or lost growth. It is generally better to keep the Roth as-is and use new TFSA room for new savings.
Do U.S. citizens still file U.S. taxes after retiring in Canada?
Yes. U.S. citizens and green-card holders file a U.S. return every year regardless of where they live, because of the treaty's saving clause. You generally use foreign tax credits to avoid paying full tax to both countries. If you are not a U.S. person, the treaty withholding is usually your final U.S. tax on the distribution.