The Canadian Returning Home with a US 401 (k)
By Bryant Andrus
Profile: The Canadian Returning Home with a US 401(k)
TL;DR
- Canadians returning home with a 401(k) or IRA hold an asset that is taxed on both sides of the border and often falls between advisors.
- A Roth conversion completed while still a US resident is taxed in the US now but, with a timely treaty election, can produce future income that is tax-free in both countries; the window closes once Canadian residency is re-established.
- Unused RRSP room from prior Canadian working years carries forward and can be used against 2025 income by the March 2, 2026 deadline, or in any later year until the end of the year you turn 71.
If you spent years working in the United States, built up a 401(k) or IRA, and are now living back in Canada — or are planning to return — you’re holding an asset that most Canadian advisors don’t fully understand and most US advisors have stopped thinking about. That gap can be expensive.
September is a good month to address this, because it sits between the US filing season and Canadian RRSP season, and it’s when most cross-border tax planning conversations for the coming year should be happening. The partial trade truce — Canada removed most retaliatory tariffs on September 1 — brought some economic relief, but it didn’t change the reality of how your US retirement accounts are taxed on both sides of the border.
What Canada Does with Your 401(k)
Canada taxes worldwide income for residents. Your 401(k) distributions are taxable in Canada as ordinary income when received. Canada does recognize the US-source nature of the income and will give you a foreign tax credit for US withholding taxes paid on the distribution — but the withholding rate, the credit mechanism, and the interaction with your provincial tax rate all require careful coordination.
Here’s the key planning decision that most returning Canadians don’t know they have: whether to convert all or part of your 401(k) or traditional IRA to a Roth IRA before you leave the US — while you’re still a US tax resident. A Roth conversion done in the US results in ordinary US income tax at the time of conversion, but all future growth and qualified withdrawals are tax-free. Canada respects the Roth’s tax-exempt status under the treaty only if you file a one-time election with your first Canadian return and make no contributions after moving, meaning a Roth IRA held by a Canadian resident may produce tax-free income in both countries. This is one of the best planning opportunities available to returning Canadians — but once Canadian residency is re-established a conversion becomes taxable in both countries.
The RRSP Contribution You May Still Be Able to Make
If you’ve returned to Canada but still have unused RRSP contribution room from your Canadian working years (US earnings don’t create RRSP room), this is a good opportunity to contribute using savings from your US accounts. The 2025 RRSP contribution deadline is March 2, 2026. For returning Canadians who plan to work in Canada again, contribution room continues to accumulate — and for those who are retired, unused room from prior years carries forward until the end of the year they turn 71.
Ready to Talk?
Cross-border planning is time-sensitive and highly fact-specific. If any of the topics in this issue apply to your situation, we would welcome the conversation. State Bird Corp specializes in US–Canada cross-border tax, estate, and immigration planning for families and businesses on both sides of the border. Our team works with clients across the US and Canada — wherever your cross-border life takes you.
Sources
- https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4040/rrsps-other-registered-plans-retirement.html
- https://www.bccpa.ca/news-events/cpabc-newsroom/2025/july/ira-conversions-to-roth-canadian-implications/
- https://www.canada.ca/en/department-finance/programs/international-trade-finance-policy/canadas-response-us-tariffs.html
- https://www.advisor.ca/tax/tax-news/how-to-bring-401ks-and-iras-to-canada/
- https://www.rbcroyalbank.com/en-ca/my-money-matters/inspired-investor/investing-academy/last-minute-rrsp-planning-deadline-limits-and-more/
Sincerely,
The State Bird Corp Team
State Bird Corp
P: (602) 641-5996 · E: Info@statebirdcorp.com · W: statebirdcorp.com
To schedule your initial consultation, please contact us at info@statebirdcorp.com so that we can help you create a plan as unique as your fingerprint.
State Bird Corp is a management and financial consulting firm. State Bird Corp is not an accounting, legal or investment advisory firm. Cross-border planning is highly fact-specific. The strategies and topics described are general in nature, and readers should consult qualified specialists before taking any action. Any recommendation, inferences, or other guidance contained herein is meant for educational or general purposes and should not be relayed upon as specific advice for any person or business. Consult your legal, tax, and investment advisor for specific recommendation to your situation.