Should a Canadian citizen who lives and works in the U.S. continue to contribute to a RRSP account?

By Joseph Nguyen AAA
A:

No, a U.S. resident should not contribute to a RRSP account. RRSP contribution rules allow you to contribute a certain percentage of your earned income, but since your income is not from a Canadian source, you would not be eligible for any tax deductions in Canada.

However, even though you are not eligible to contribute to your RRSP, you are still allowed to keep your RRSP to let your investments grow without being subject to tax in Canada. As a U.S. resident, you can elect to defer income generated from your investments in your RRSP until it is withdrawn by filling out Form 8891 each year with your tax return.

In addition, if you are emigrating from Canada, you should maximize your contribution in the year that you leave Canada. The government gives you 60 days after year-end to make this contribution. Also, it is important to note that if you have taken any money out of your RRSP under the Home Buyer's Plan (HBP) or other plans, you should arrange to repay the amount before becoming a non-resident. Otherwise, that outstanding amount may be subject to income tax for the year of emigration. (To learn more about the retirement planning process, read Retirement Planning.)

If you do plan on staying in the U.S. for an extended period, you may want to look into opening an individual retirement account (IRA). You will be allowed to open an IRA in the U.S., as long as you are a legal U.S. resident with a valid social security number. This will allow you to defer taxes on contributions you make from income earned in the U.S. (For more information on choosing the right IRA, take a look at our article, Which Retirement Plan Is Best?)

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