RSP vs RRSP: What the Terms Mean and How the Plan Works

RSP and RRSP refer to the same thing in everyday use. RRSP — registered retirement savings plan — is the legal term for a retirement account registered with the Canada Revenue Agency; RSP is the label banks print on statements. Contributions are deductible up to your room, growth is tax-deferred, withdrawals are taxed, and the plan converts at 71.

On this page

1. Why two names?
2. How does an RRSP work?
3. How does the United States treat an RRSP?
4. Should you contribute after moving to the United States?
5. Worked example
6. Frequently asked questions
7. Related guides
8. Official sources
9. Next step

Why two names?

"RSP" appears on bank product names ("RSP savings account," "RSP GIC") because financial institutions offer retirement savings products that are held inside a registered plan — the product is the GIC or the fund, and the registration is what makes it an RRSP. In practice, any RSP a Canadian institution sells is registered, so the terms are interchangeable. The CRA, the Income Tax Act, and your notice of assessment use "RRSP." An unregistered savings plan would not carry either label.

How does an RRSP work?

The deduction's value is the marginal rate at contribution; the tax on withdrawal is the marginal rate at retirement. The plan wins when the retirement rate is lower — the ordinary case — and it also wins on decades of untaxed compounding regardless.

How does the United States treat an RRSP?

This is where the cross-border question starts. A Canadian who becomes a U.S. resident (or a U.S. citizen living in Canada) still owns the RRSP, and U.S. tax law would ordinarily tax the plan's annual income because an RRSP is not a U.S. qualified plan. The treaty fixes it: under Article XVIII, the U.S. resident may defer U.S. tax on the RRSP's income until distributions are made, and since 2014 the deferral is automatic for eligible individuals — no election form is required (the old Form 8891 was retired). Distributions are then taxable in the United States as pension income, including the growth that accrued before the person became a U.S. resident: neither the treaty nor the IRS steps up the plan's value on arrival, and Revenue Procedure 2014-55 requires undistributed income that was never taxed in the United States to be included when distributed. The only U.S. basis is after-tax investment in the plan under section 72, tracked from the individual's history. Canada withholds 25 percent on RRSP withdrawals by non-residents (the treaty's 15 percent rate applies only to periodic payments from a RRIF or annuity, never to an RRSP lump sum), and the U.S. resident claims a foreign tax credit. The RRSP is reported annually on the FBAR and Form 8938 (it is a foreign financial account), but not on Form 3520 — Revenue Procedure 2014-55 exempts Canadian retirement plans from that filing.

Should you contribute after moving to the United States?

Generally no. A U.S. resident gets no U.S. deduction for RRSP contributions (a Canadian deduction is useless without Canadian income), and contributions made while a U.S. resident become after-tax basis to track. The plan is left to grow, converted to a RRIF at 71 (the RRIF minimum withdrawal guide), and drawn down with the withholding and credit mechanics above. A U.S. citizen living in Canada with Canadian earned income is the exception — the Canadian deduction is real, the U.S. deferral applies, and since 2009 the treaty lets a U.S. citizen working in Canada deduct contributions on the U.S. return only for employer group plans (registered pension plans, group RRSPs, and deferred profit sharing plans), within the U.S. limits for a comparable plan — an individual RRSP contribution is not deductible on the U.S. return.

Worked example

A software engineer in Toronto earns C$150,000 and has C$40,000 of unused room; she contributes C$27,000 in February and deducts it on the prior year's return, saving about C$12,000 at her marginal rate. Two years later she moves to Texas with a C$310,000 RRSP. Her U.S. return: no annual tax on the plan's growth (automatic treaty deferral), the account on her FBAR and Form 8938, no Form 3520. She stops contributing. At 71 the plan becomes a RRIF; Canada withholds 15 percent on the minimum withdrawals (periodic payments under the treaty), she reports the withdrawals as pension income on her U.S. return, and she claims the Canadian tax as a foreign tax credit. Her brother, who kept contributing from Texas on a Canadian broker's advice: no U.S. deduction, no Canadian deduction (no Canadian income), and a plan history his cross-border preparer now has to untangle for section 72 basis tracking.

Frequently asked questions

Official sources

The CRA states: “An RRSP is a retirement savings plan that you establish, that the CRA registers, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax.” — Canada Revenue Agency, Registered Retirement Savings Plan (RRSP), https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/registered-retirement-savings-plan-rrsp.html

Publication 597 states: “Generally, income that accrues in certain Canadian retirement plans (including RRSPs or RRIFs) is currently subject to U.S. tax, even if it is not distributed. However, a U.S. citizen or resident can elect to defer U.S. tax on income accrued in the plan until the income is distributed.” — Internal Revenue Service, Publication 597, Information on the United States–Canada Income Tax Treaty, https://www.irs.gov/publications/p597

Next step

Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle RRSP and RRIF planning across the border — treaty deferral, withdrawal timing and withholding, FBAR and Form 8938 reporting, and foreign tax credit coordination. See pricing or book a call.