The closest Canadian equivalent to an IRA or 401(k) is the Registered Retirement Savings Plan, which is commonly known as the “RRSP.” Contributions are tax deductible, and tax is payable as distributions are taken, which may occur at any time. The maximum annual RRSP contribution is roughly 18% of earned income, up to a maximum of $22,000 CAD. At age 71, a RRSP must either be distributed or converted into a Registered Retirement Income Fund (or “RRIF”), which has characteristics similar to an RRSP except that no contributions may be made and there are mandatory annual withdrawals. The Canadian equivalent to a Roth IRA is the Tax-Free Savings Account (or “TFSA”). Contributions are not deductible, but distributions (which may be taken at any time) are not taxable.
If a US person living in Canada contributes to an RRSP, a deduction is allowed for Canadian tax purposes, but not for US tax purposes. In the hands of a US citizen or resident, US tax laws treat RRSP or RRIF funds like any other investment not sheltered by a qualified plan: dividends, interest and capital gains are taxed as earned, whether withdrawn or not. Thus, all income earned after moving to the US will be taxed by the US — unless the taxpayer files IRS Form 8891 to defer U.S. tax until distributions are made. The cost basis of an RRSP, RRIF or TFSA (generally comprised of contributions and earnings prior to moving to the US) can be withdrawn free of US tax. The taxable-nontaxable computations are tedious. The Form 8891 election also defers Oregon income tax in a like manner.
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