Can a Canadian Living and Working in the U.S. Contribute to an RRSP?

A registered retirement savings plan (RRSP) is a Canadian savings account that allows Canadians to save for retirement. The RRSP account is registered with the Canadian government. Canadians may keep their registered retirement savings plan (RRSP) intact when they move to the United States and let the income grow tax-deferred for Canadian tax purposes. 

Canadian citizens who live and work in the United States may contribute to an RRSP if they have room to do so. For 2023, the RRSP contribution limit is 18% of the earned income reported on the tax return in the previous year, up to a maximum of $30,780. That limit increases to $31,560 in 2024.

Keep in mind that if you are a resident of Canada who works in the U.S., you may contribute to a 401(k) plan or open an individual retirement account (IRA) in the United States.

What Is an RRSP?

An RRSP is a retirement savings and investment vehicle for employees and self-employed individuals 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.

RRSPs are similar to 401(k) plans offered in the United States. Contributions deposited in an RRSP before taxes grow tax-free until withdrawal, at which time it is taxed at the marginal rate. Individuals can open RRSPs through banks, credit unions, investment companies, and other financial institutions.

RRSPs come in various types, including:

• Individual RRSP: This account is registered and held in the contributor's name. The individual named on the account also benefits from the tax advantages and savings.
• Spousal RRSP: An individual can register an RRSP in their spouse's name. The contributor earns any tax advantage even though the account belongs to their spouse. Individuals who set up these accounts should keep contribution limits in mind as a spousal RRSP deposit will affect their contribution limit.
• Groups RRSP: A group RRPS is set up through an employer and is funded through payroll deductions. Combined contributions to a group and individual RRSP cannot exceed the annual maximum.
• Self-Directed RRSP: People who want to invest and manage a portfolio on their own can do so through a self-directed RRSP. This is generally meant for people who want to invest in stocks rather than funds.

Contributing to an RRSP gives the contributor several tax advantages, which are discussed below.

Tax Implications

Taxation of the RRSP is similar to the 401(k) in the U.S., where the money deposited into the RRSP is pre-tax and grows tax-free until it is withdrawn. This means that your contributions are tax-free but withdrawals are taxed as income when you retire. Contributors can deduct contributions from their taxable income when they file their annual tax returns.

Like the 401(k), the goal of the RRSP is to defer the tax now, and when the investment is distributed to the beneficiary at retirement, it may be taxed at a lower progressive tax rate. 

For Canadians who also contribute to a 401(K) in the U.S., the 401(k) deduction on a Canadian tax return is limited to the RRSP contribution room minus any RRSP contributions. When making RRSP and 401(K) contributions, employees may have to defer some of the RRSP contributions and deduct them in a future year. IRA contributions are not deductible in Canada.

The Bottom Line

A registered retirement savings plan is registered with the Canadian government and allows individuals to save on a tax-deferred basis. RRSPs are similar to 401(k) plans offered in the United States. Canadian citizens who live and work in the United States may contribute to an RRSP if they have room based on limits set by the Canadian government each year.

Correction—May 9, 2023: A previous version of this article incorrectly stated that Canadian citizens who live and work in the United States may not contribute to an RRSP.