Moving from Canada to Iowa: A Flat 3.8%, Exempt Retirement Income, and the Des Moines Insurance Corridor

Des Moines is an insurance and financial services capital (Principal, Nationwide's Iowa operations, Wells Fargo's mortgage business), and Iowa's agribusiness, manufacturing, and university sectors draw Canadians as well. Iowa has overhauled its tax system in recent years: a flat income tax that has fallen to 3.8%, no local income taxes, no inheritance tax after 2025, and a full exemption for retirement income for taxpayers 55 and older.

Key takeaways

• Iowa's flat income tax is 3.8%. No local income taxes.
• Iowa exempts retirement income (pensions, IRA and 401(k) distributions, and comparable income) for taxpayers 55 and older, and exempts Social Security.
• Sales tax is 7% in most of the state (6% state plus 1% local option).
• Property tax is near 1.5% effective with a homestead credit.
• Iowa's inheritance tax was repealed for deaths after 2024. No estate tax.

The Canadian departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the day you leave. Canadian real estate, RRSPs, TFSAs, and pensions are excluded. Report on Form T1243, list holdings on Form T1161 if the total exceeds $25,000, and post security under Form T1244 to defer tax on illiquid assets. The rate is your province's: on a $300,000 unrealized gain, roughly $72,000 from Alberta and $80,000 from Ontario, Quebec, or BC. Provincial health coverage ends around your departure date; confirm the exact date with your plan and arrange US coverage to start the same month.

US federal side

Dual-status return in the arrival year, FBAR on Canadian accounts above $10,000 aggregate, Form 8938 above thresholds, and the RRSP treaty deferral federally. The TFSA loses its tax-free status the day you become a US person; close it before crossing. Equity compensation vesting after the move is split by working days between Canada and the US.

Iowa's side

Flat 3.8% income tax; no local income taxes; 6% state sales tax plus a 1% local option in most jurisdictions; property tax near 1.5% effective with a homestead credit; no estate tax and no inheritance tax after 2024. Iowa starts from federal taxable income and exempts retirement income for taxpayers 55 and older, which covers pension, RRIF, and CPP income for most Canadian retirees.

The RRSP

Federally deferred under Article XVIII of the treaty and deferred for Iowa because the state starts from federal taxable income. For taxpayers 55 and older, RRIF and pension income is generally exempt from Iowa tax under the retirement income exclusion; document the position in the first-year file. Canadian withholding is 25% on lump sums, 15% on periodic RRIF payments within the treaty limit, with a US foreign tax credit federally.

Who makes this move

Canadian insurance and actuarial professionals to Principal and Des Moines's insurers, Canadian agribusiness staff to Iowa's food and equipment companies, Ontario and Manitoba manufacturing engineers to John Deere and Iowa's plants, and Canadian academics to the University of Iowa and Iowa State.

Worked example

A Winnipeg actuary moves to Des Moines on June 30 with $180,000 of unrealized gain in a non-registered account, $400,000 in an RRSP, and a Winnipeg home sold in the departure year.

• Departure tax. $180,000 gain, $90,000 taxable, at Manitoba's roughly 50.4%: about $45,000.
• Home. Sold as a resident under the principal residence exemption.
• RRSP. No tax on departure; federal and Iowa deferral; RRIF income exempt from Iowa tax after 55.
• Des Moines. Combined top rate about 40.8%. Sales tax 12% becomes 7%. Property tax on a $450,000 home around $6,500.

Official sources

"When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax)." — Canada Revenue Agency, Leaving Canada (emigrants), https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

Iowa law provides for a flat tax rate of 3.8 percent, which applies to all levels of taxable individual income. — Iowa Department of Revenue, IDR Announces 2026 Individual Income Tax and Interest Rates, https://revenue.iowa.gov/press-release/2025-10-21/idr-announces-2026-individual-income-tax-and-interest-rates

"You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least: 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that." — Internal Revenue Service, Substantial Presence Test, https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

Practitioner note

Iowa is one of the better states for a Canadian retiree over 55: pension, CPP, and RRIF income are exempt from state tax, there is no estate or inheritance tax, and the flat rate on other income is low. Property tax is the offsetting item.

See also: Weighing Florida instead? See the Canada-to-Florida guide. Browse every corridor by city, province, and state.

Next step

Fairlight prepares the Canadian departure return, the first-year federal and state returns, and ongoing cross-border filings. See cross-border pricing or book a call.