RRSP US Tax Treatment: RRIF, TFSA and RESP Rules for US Persons

RRSP US tax treatment is usually the first question for Canadian-American households, and the answer differs sharply by account. A Registered Retirement Savings Plan or Registered Retirement Income Fund is protected by the Canada-United States tax treaty, so growth inside it is not taxed in the U.S. until you take money out. A Tax-Free Savings Account is not a retirement plan under the treaty, and a Registered Education Savings Plan sits in its own category. This guide is for U.S. citizens, green card holders and other U.S. residents who hold Canadian registered accounts, and for Canadians who are about to become U.S. residents.

What is the RRSP US tax treatment for RRIFs and RRSPs?

Under U.S. domestic law, income accruing in a foreign retirement plan would be taxed each year. The treaty election removes that mismatch. Revenue Procedure 2014-55 says an "eligible individual" is someone who has met every U.S. filing requirement while a citizen or resident, has not already reported the plan's undistributed income, and has reported all distributions. That person is treated as having elected deferral for each plan from the first year it was available, and the election runs until the final distribution. If you previously reported the plan's growth on your return, you are not eligible for the automatic treatment and need the IRS Commissioner's consent to elect. The election covers accrued income only, not contributions.

Distributions are taxed in the U.S. under the ordinary annuity rules. Canada withholds tax on non-resident withdrawals (a 25% default rate on lump sums), and the treaty caps periodic pension payments at 15%. Claim the Canadian tax as a foreign tax credit. Ask your Canadian CPA about the withholding side and the non-resident tax rules.

What replaced Form 8891?

Nothing in the form sense. People often say Form 8891 was repealed; the IRS term is obsolete as of December 31, 2014. Revenue Procedure 2014-55 removed the requirement for Form 8891, replaced the old election statement with the automatic rule above, and excused RRSP and RRIF holders from Form 3520 and custodians from Form 3520-A. The same document warns that it does not affect Form 8938 or the FBAR.

What about the TFSA?

The treaty election covers plans operated exclusively to provide pension, retirement or employee benefits. A TFSA is a general savings vehicle, so the election does not reach it. Revenue Procedure 2020-17 exempts certain "tax-favored" foreign trusts from Forms 3520 and 3520-A, but a TFSA does not fit either of its categories: the retirement category requires contributions based on earned income, and the savings category is limited to medical, disability or educational purposes.

The 2024 proposed regulations add a third category, a "de minimis savings trust," for a tax-favored savings vehicle whose aggregate value, across all such trusts in the country, stays at or below $50,000 (indexed for inflation under the proposal). The Form 3520 instructions (December 2025 revision) say you may rely on the proposed regulations until they are finalized, provided you apply them consistently. We read that as potential relief for a small TFSA, but it is not a safe harbour for a larger one, and it does not remove income tax. A TFSA above the threshold is generally a foreign trust: annual Form 3520 and Form 3520-A, and income taxed currently. See the Forms 3520 and 3520-A guide.

How are RESPs handled?

An RESP can receive contributions up to a lifetime limit of C$50,000 per beneficiary with no annual limit, according to the federal government, and may attract Canadian government grants. For U.S. purposes it is generally analyzed as a foreign trust. Revenue Procedure 2020-17 defines a tax-favored non-retirement savings trust as one for medical, disability or educational benefits, with contributions limited to $10,000 or less a year or $200,000 or less over a lifetime, and with withdrawals tied to those purposes or penalized. Many practitioners conclude an RESP can meet that test, but you should verify each plan. Even if the information reporting is excused, the income is still a U.S. tax question. The FHSA is newer, and we found no guidance naming it, so treat it as an open item to review with us.

Step by step: reporting your Canadian registered accounts

1. List every plan: RRSP, RRIF, locked-in plans, TFSA, RESP, FHSA, employer pensions, with balances at each year-end and the maximum during the year.
2. Classify each under the treaty and the two revenue procedures.
3. Confirm the RRSP and RRIF election status (automatic, or reported-growth history needing consent).
4. Report on the FBAR when the combined foreign accounts exceed $10,000 at any time. See the FBAR guide.
5. Report on Form 8938 when the thresholds are met. A foreign pension interest is valued at its fair market value at year-end under the IRS instructions. See Form 8938.
6. Check the investments inside: Canadian funds held in a TFSA or RESP can be PFICs. See Canadian mutual funds and PFIC.
7. Compute income from taxable accounts and file Forms 3520 and 3520-A where required.

Documents to gather

• Annual statements and T4RSP, T4RIF, T4TFSA or RESP slips
• Contribution and withdrawal history for each plan
• Dates the plans opened, and the dates you became a U.S. person
• Prior U.S. returns, to see whether plan income was ever reported
• Fund holdings lists for each account

Deadlines and penalties

Forms 3520 and 3520-A follow the return: Form 3520 is due with your income tax return including extensions, and Form 3520-A is due by March 15 for a calendar-year trust. The IRS lists an initial Form 3520 penalty of the greater of $10,000 or 35% of the gross value of certain transfers or distributions, and a Form 3520-A penalty of the greater of $10,000 or 5% of the gross value of the trust assets you own. Form 8938 failures carry a $10,000 penalty with more after notice, and FBAR penalties are adjusted annually.

Worked example

Carlos is a US citizen in Calgary. He holds an RRSP of C$200,000, a TFSA of C$55,000 (about US$40,000), and an RESP of C$30,000 for his daughter. He files Form 1040 each year and has never reported RRSP growth, so he is an eligible individual and is treated as having elected deferral, with no Form 8891. All three accounts appear on his FBAR. Because his TFSA is under $50,000, he may rely on the proposed de minimis rule to skip Forms 3520 and 3520-A for it, but he reports the TFSA's interest and gains on his return. If his TFSA were worth US$80,000, he would file Forms 3520 and 3520-A. The RESP is reviewed for the education-trust exemption. The numbers are hypothetical.

Mistakes to avoid

• Filing Form 8891, or telling clients it is needed.
• Treating the TFSA like an RRSP.
• Reporting RRSP growth on the return, which can cost you automatic eligibility.
• Omitting the accounts from the FBAR because they are "tax-sheltered".
• Ignoring PFICs held inside a TFSA.

How we can help

We are a U.S. CPA firm in the Aurora, Illinois area. We classify each Canadian account, prepare the FBAR, Form 8938, Form 8621 and any Form 3520 and 3520-A, and coordinate with your Canadian CPA, who handles the T1 and plan slips. See foreign account and asset reporting and cross-border tax services. Related reading: Americans living in Canada, the treaty guide, and the cross-border hub.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.