What happens to my 401(k) or IRA when I move to Canada?

Leaving the account in the US is usually the simplest path

Moving to Canada does not force you to do anything with a 401(k) or traditional IRA. The account can stay with the same US custodian, holding the same investments, and Article XVIII of the Canada-US tax treaty preserves the tax deferral on the growth inside it for Canadian tax purposes, matching the deferral you already have under US rules. As at the time of writing, this deferral is generally recognized automatically once you are a Canadian resident, without needing to file a fresh annual election, though it is worth confirming your specific position with us since the administrative requirements around this have changed over the years.

The main practical issue with leaving the account in the US is custodial: not every US brokerage is willing to keep an account open once you have a Canadian address, so it is worth checking with the provider directly rather than assuming the account can simply stay as is indefinitely.

How distributions are taxed once you are a Canadian resident

When you eventually take a distribution, it is taxable in Canada as foreign pension or annuity income, reported on your Canadian return in the year received and converted to Canadian dollars. The US will also apply withholding tax on the payment to a Canadian resident, generally 15% on periodic payments that qualify under the treaty, and up to 30% on a lump-sum or non-periodic distribution that does not meet the treaty's conditions for the lower rate. That US withholding is usually creditable against the Canadian tax on the same income through the foreign tax credit, which prevents the same dollar from being taxed in full by both countries.

The credit mechanics work more smoothly with periodic withdrawals than with an irregular lump sum, since a large one-time distribution can push you into a Canadian bracket where the credit does not fully offset the higher US withholding rate in the same year, leaving a timing mismatch even though the total tax evens out eventually.

Transferring a lump sum into an RRSP

Paragraph 60(j) of the Income Tax Act allows a Canadian resident to transfer certain lump-sum pension amounts, including qualifying US retirement plan payouts, into an RRSP and claim an offsetting deduction, without needing existing RRSP contribution room to do it. Done correctly, this can shelter the transferred amount from Canadian tax entirely at the time of transfer. The complication is aligning the US withholding tax already paid on the distribution with the timing of the Canadian inclusion and deduction, since the two can fall in ways that leave a portion of the US tax uncredited in the year it matters. This is a transaction worth planning with both a Canadian and US filing position mapped out together, not executed on the US side alone.

The Roth IRA is a different animal entirely

A Roth IRA does not fit naturally into Canadian tax law, since Canada has no equivalent concept of already-taxed contributions growing permanently tax-free. Without any election, the growth inside a Roth IRA could be taxable in Canada each year even though it is tax-free in the US. The treaty provides a fix: filing a one-time election in the first year you are a Canadian resident (or the year the Roth was established, if later) lets you defer Canadian tax on the account's growth the same way it is deferred in the US. The condition attached to that election is that you make no further contributions to the Roth IRA after becoming a Canadian resident; contributing again after the election can jeopardize the treaty-protected treatment for the account going forward.

Whether to keep contributing once you are a Canadian resident

An employer-sponsored 401(k) generally stops being an option once you leave US employment, so this question mostly applies to people who keep a foreign employment relationship or self-employment income that lets them contribute to an IRA. Contributing to a US retirement account while living in Canada raises its own complications, since a Canadian resident's worldwide income is reported here, and a US contribution deduction does not automatically translate into a matching Canadian deduction. Most people who move to Canada permanently stop contributing to US retirement accounts and instead build up RRSP room from their new Canadian income, keeping the two systems separate rather than trying to contribute to both at once.

This is the mirror image of what happens to a Canadian's registered accounts when the move runs the other way; see what happens to my RRSP and TFSA when I leave Canada for that side of the relationship.

How this fits with the rest of your move

A 401(k) or IRA is rarely the only cross-border item on the table when someone relocates to Canada. Employment income earned partway through the year in each country, US state tax filings that may still apply, and the timing of when Canadian residency actually begins all interact with how a retirement account distribution gets taxed, so the account should be planned alongside the broader move rather than in isolation. Our guide to moving to Canada from the US walks through the rest of that picture, including the residency questions that determine which year a distribution actually falls into for Canadian purposes.

Putting the pieces together

For most people the sequence looks like this: confirm the custodian will keep the account open, make the Roth election in year one if applicable, plan any distributions with the periodic-versus-lump-sum treaty distinction in mind, and consider a 60(j) RRSP transfer only where the numbers on both sides of the border have been modelled together. We go through the RRSP side of this relationship in our 401(k), IRA and RRSP guide.

How we handle this

We review the account type, the custodian's rules, and your expected withdrawal pattern before recommending whether to leave the account in place, transfer it, or draw it down. For Roth accounts we make sure the treaty election is filed on time in the first return after you arrive, and for any 401(k) or IRA distribution we prepare both the Canadian inclusion and the foreign tax credit together, as part of our cross-border tax services for people moving to Canada from the US.