Can You Keep an RDSP After Leaving Canada?
Cross-Border Tax Implications and the 10-Year Repayment Rule Explained
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Moving from Canada to the U.S. and wondering what happens to your Registered Disability Savings Plan (RDSP)? Learn how the RDSP is treated for nonresidents, how grants and bonds work, and the tax implications under U.S. law.
A Real Client Story: RDSP Planning After Moving to the United States
Recently, I met with a client who was preparing to move from Canada to the United States. Like many Canadians with disabilities, she had built up significant savings in her Registered Disability Savings Plan (RDSP), including thousands of dollars in Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs).
Her concern was simple but important:
“If I become a nonresident, can I keep my RDSP—and what happens to the taxation and government grants?”
Can You Keep an RDSP as a Nonresident?
Yes, nonresidents can keep their RDSP open, but there are limits. Once you are no longer a Canadian resident:
- You cannot receive new grants or bonds, even if you continue contributing.
- You can keep the account open, and investments inside can continue to grow.
- You must report investment income on your U.S. tax return, since the RDSP is not covered by the Canada-U.S. Tax Treaty.
In other words, the account remains valid in Canada but loses its tax-sheltered status in the United States.
The 10-Year Repayment Rule (Assistance Holdback Amount)
The 10-year repayment rule, sometimes called the Assistance Holdback Amount (AHA), is a cornerstone of RDSP planning.
It states that any government grants or bonds received within the 10 years before a withdrawal must be repaid to the Government of Canada if:
- A withdrawal is made, or
- The account is closed.
Example:
If you received a government grant in 2020, any withdrawals made before 2030 would trigger repayment of that grant (and any others received during that 10-year window).
That’s why I advised my client not to make any withdrawals until at least 10 years after the last grant or bond was received. By waiting until retirement, she can avoid the repayment entirely and preserve the full value of her government incentives.
How RDSP Grants and Bonds Work
To appreciate why protecting these incentives matters, here’s how they work:
Canada Disability Savings Grant (CDSG)
- The government matches personal contributions up to 300%, depending on family income.
- A $1,500 annual contribution can yield up to $3,500 in grants.
- The lifetime limit for grants is $70,000.
Canada Disability Savings Bond (CDSB)
- For lower-income Canadians, the government contributes up to $1,000 annually, even without personal contributions.
- The lifetime limit for bonds is $20,000.
These generous incentives are what make the RDSP so valuable, and why it’s critical to avoid triggering repayment.
U.S. Tax Treatment of RDSPs
Here’s where things get tricky. The Canada-U.S. Tax Treaty does not include RDSPs, meaning they do not receive the same deferral benefits as RRSPs or pensions.
For U.S. tax purposes, this means:
- All interest, dividends, and capital gains earned inside the RDSP are taxable annually in the U.S.
- The account may need to be reported on Form 8938 (FATCA) and FBAR (FinCEN 114).
- No Canadian tax slips are issued, so the investment income must be calculated manually and converted to USD using the exchange rate at the time of each transaction.
While this adds reporting complexity and tax preparation costs, the trade-off is clear: my client retains thousands of dollars in free government money by keeping her RDSP open and compliant.
The Assistance Holdback Amount and Retirement Withdrawals
If my client waits until 10 years have passed since the last grant or bond, the Assistance Holdback Amount becomes zero. At that point, she can begin withdrawing RDSP funds freely without triggering repayment.
This strategy allows her to:
- Preserve 100% of government grants and bonds.
- Defer taxation until retirement when her income may be lower.
- Maintain access to a unique long-term disability savings vehicle.
Practical Considerations for Cross-Border RDSP Holders
If you hold an RDSP and are moving to the United States:
- You are not eligible for the Disability Tax Credit as a nonresident.
- Stop making new contributions—you won’t earn additional grants or bonds as a nonresident.
- Keep the RDSP open to retain grants already received.
- Track your investment income annually for U.S. tax purposes.
- Wait at least 10 years after your last grant or bond before withdrawing.
- Consult a cross-border financial planner or tax advisor to ensure full compliance on both sides of the border.
For Canadians with disabilities, a RDSP can represent tens of thousands of dollars in free government support. If you move abroad, closing the plan too soon could mean repaying all of it.
By keeping the RDSP open, reporting the income properly in the U.S., and waiting out the 10-year rule, you can preserve the full benefit of your grants and bonds while maintaining flexibility for future withdrawals.
As I told my client: yes, it’s a bit of extra paperwork each year, but the reward is keeping thousands of dollars in lifetime savings.
Cross-Border Wealth Planning That Protects Your Future
At 49th Parallel Wealth Management, we specialize in helping Canadians and Americans navigate the complexities of cross-border retirement, taxation, and investment planning.
If you’re moving between the U.S. and Canada and have an RDSP, RRSP, TFSA, or RESP, reach out before you make any major changes. A quick conversation could save you thousands and safeguard your long-term financial independence.
