Moving from Canada to Texas: what happens to your RRSP, TFSA and RESP

Moving to Houston doesn't force you to close anything in Canada. It does change the rules. Canada stops treating you as a resident, the United States starts, and each account lands differently.

Every rule below links to its source, mostly the IRS, the Canada Revenue Agency (CRA) and the Canada–US tax treaty. Where they don't give a clear answer, I say so.

01Before you go: departure tax

You usually become a non-resident of Canada on the latest of three dates: the day you leave, the day your spouse or common-law partner and dependants leave, or the day you become a resident of your new country.¹

On that date, the CRA treats you as having sold certain property at fair market value, even if you kept it. This is often called departure tax.² RRSPs, RRIFs, TFSAs, RESPs, RDSPs, pensions and Canadian real estate are on the CRA's list of exempt property, so the move doesn't trigger departure tax on them. It can apply to other investments, such as shares in a non-registered account.

If everything you own is worth more than $25,000 when you leave, you list it on Form T1161. You can elect to defer paying departure tax (Form T1244) by April 30 of the following year; above $16,500 of federal tax, the CRA asks for security.²

Article XIII(7) of the treaty also lets you elect, for U.S. purposes, to be treated as if you sold and bought back that property at fair market value just before Canada's deemed sale.³

02RRSP and RRIF: the clearest rules

The treaty lets a U.S. resident defer U.S. tax on income that builds up inside a Canadian retirement plan until it's paid out.³ Under IRS Revenue Procedure 2014-55, eligible people are treated as having made that election automatically, with no form to file. Form 8891 has been obsolete since the end of 2014.⁴ Eligibility turns on having filed required U.S. returns and not having reported the plan's undistributed income.

The same revenue procedure removes the foreign-trust forms (3520 and 3520-A) for RRSPs and RRIFs. It leaves the FBAR and Form 8938 in place.⁴

When you withdraw, both countries have a say. Canada withholds 25% on RRSP withdrawals paid to non-residents unless a treaty lowers it.⁵ The treaty caps Canada's tax on periodic pension payments at 15%.³ Ask your institution whether your payment counts as periodic before you withdraw. On the U.S. side, the withdrawal goes on your return,⁴ and you may be able to claim a credit for the Canadian tax.⁶

03TFSA: tax-free in Canada only

You can keep your TFSA after you leave, and its income and withdrawals aren't taxed in Canada.⁷ You earn no new contribution room for any year you're a non-resident for the whole year, and any contribution you make while non-resident is taxed at 1% for each month it stays in the account.

In the U.S., the treaty's deferral covers plans "operated exclusively to provide pension or employee benefits."³ A TFSA isn't built that way, and I found no IRS guidance that extends the deferral to it. The CRA itself says TFSA income and withdrawals "may be taxed in your country of residence."⁷ Plan on the U.S. taxing what the account earns.

04RESP: watch the grants

RESP rules turn on residency. A beneficiary must be a resident of Canada to receive Canada Education Savings Grant or Canada Learning Bond money as part of an educational assistance payment.⁹ New contributions need a beneficiary who is a resident of Canada, unless the money is a transfer from another RESP.¹⁰

If the plan's investment income is paid to you instead (an accumulated income payment), you must be a resident of Canada, and the payment carries an extra 20% tax on top of regular income tax. Your own contributions can be returned to you tax-free, subject to the plan's terms.⁹ Ask your RESP provider what happens to the grants before you move.

05The U.S. reporting forms

FBAR (FinCEN Form 114). File it if the combined value of your accounts outside the U.S. was over $10,000 at any time during the year. It goes to FinCEN through the BSA E-Filing System, separate from your tax return, and it's due April 15 with an automatic extension to October 15.¹¹ "Financial account" is broad: securities, brokerage, savings and deposit accounts all count.¹²

Form 8938. This one is filed with your tax return. If you live in the U.S., it's required when your foreign financial assets top $50,000 on the last day of the year or $75,000 at any time (single, or married filing separately), or $100,000 and $150,000 if married filing jointly.¹³ Interests in foreign pension plans count, and filing one form doesn't excuse you from the other.¹⁴

06Social Security and CPP

If you paid into the Canada Pension Plan, the U.S.–Canada Social Security agreement (in effect since August 1, 1984) can help you qualify for U.S. benefits.¹⁵ If you're short of U.S. credits, Social Security can count your CPP or QPP coverage, crediting four U.S. quarters for each calendar year of it, as long as you have at least six U.S. quarters of your own.¹⁶

07Texas

Texas doesn't have a personal income tax.¹⁷ The cross-border questions above are federal ones.

08A short checklist

• Note your departure date and keep copies of any T1161, T1243 or T1244 you file.
• Stop TFSA contributions once you're a non-resident.
• Track each Canadian account's highest value in the year, for the FBAR and Form 8938.
• Before any RRSP or RRIF withdrawal, ask how both countries will tax it.

Rules change, and your situation has details a general note can't see. Use this to bring better questions to a cross-border tax professional.