The RRSP is by far the most common retirement planning vehicle for Canadian residents. The problem is that US tax law does NOT recognize the RRSP as a “retirement tax deferral vehicle”. Fortunately, this problem is solved as part of the U.S. Canada tax treaty.
The bottom line:
The RRSP accumulates tax free in Canada. In order for you NOT to be required to report your RRSP income on your U.S. tax return, you are required to make a specific election and to file a form “8891”. Even those who have been filing U.S. tax returns may not be aware of these potential problems.
What if you have not been filing the Form 8891?
Since September 1, 2012 there has been a new IRS procedure (“Streamlined Compliance”) that will allow you to “fix your RRSP” election without having to go the trouble of getting what is called a ( (which is very expensive) “Private Letter Ruling”.
Effective January 1, 2015 the 8891 will now longer be required. Note that like all things IRS, it’s not quite as simple as all that but …
What you need to know:
As it currently stands the RRSP is the only Canadian retirement planning vehicle which is given special treatment under the Canada U.S. tax treaty.