Inheriting a US IRA or 401(k) while living in Canada

Can a Canadian resident inherit a US IRA or 401(k), and what should I do first?

Yes. A beneficiary can be any person or entity the owner chooses, so living in Canada does not bar you. The beneficiary designation and plan terms set your rights. Whether the provider keeps the account, accepts a transfer or pays a Canadian address is its own policy, which the government beneficiary rules do not settle. IRS: beneficiary rules.

This page is for a Canadian resident who is not a US citizen, green card holder or US tax resident.

Before requesting cash, ask the custodian or plan administrator to confirm:

1. Whether the account is a traditional IRA, Roth IRA, traditional 401(k) or designated Roth 401(k).
2. Whether you are the direct beneficiary, sole beneficiary, or receiving money through an estate or trust.
3. Whether the owner died before or on or after the required beginning date: April 1 of the year after the owner reached the age when withdrawals became mandatory (73 under current law, earlier for older owners, later for some 401(k) owners still working).
4. Whether the owner's required withdrawal for the year of death remains unpaid.
5. Whether the provider can keep an inherited account for a Canadian resident, accept a direct transfer, and apply treaty withholding.

Gather the beneficiary form, death certificate, date-of-death value, prior December 31 balance and records of after-tax contributions; keep any Forms 1042-S and 1099-R. The date-of-death value does not make withdrawals tax-free. IRS: Publication 590-B.

How fast must I withdraw an inherited IRA or 401(k)?

Many individual heirs must empty an inherited retirement account by December 31 of the tenth year after death. If the owner died on or after the required beginning date, that deadline generally comes with annual required minimum distributions, not permission to wait until the final year. IRS: beneficiary rules; regulation 1.401(a)(9)-3(c)(3); regulation 1.401(a)(9)-5(d)–(e).

These are the usual rules for a direct individual heir when the owner died after 2019; an earlier death, successor beneficiary or trust needs a separate check. If the owner died from 2020 through 2023 on or after the required beginning date, the IRS did not assert the excise tax on annual minimums a 10-year-rule heir missed through 2024; the final regulations require them from 2025. IRS: Notice 2024-35.

Eligible designated beneficiaries are the surviving spouse, the owner's minor child, a person meeting the US disability or chronic-illness tests, and someone not more than 10 years younger than the owner. They may take life-expectancy payments, subject to plan terms, starting by December 31 of the year after the year of death (a surviving spouse may start later); a minor child's 10-year clock generally starts at age 21. A grandchild does not qualify merely because of age. Status is tested at death; a disabled or chronically ill heir must give the plan administrator documentation (with a practitioner's certification for chronic illness) by October 31 of the year after the year of death. Regulation 1.401(a)(9)-3(c)(4); regulation 1.401(a)(9)-4(e); Publication 590-B.

If the owner named several people, ask the custodian to split the account into separate accounts, generally by December 31 of the year after the year of death. Otherwise one heir who is not an eligible designated beneficiary can mean none is treated as eligible (the owner's minor child is an exception), and life-expectancy payments use the oldest heir. Regulation 1.401(a)(9)-8(a); regulation 1.401(a)(9)-4(e)(2).

A required minimum uses the account balance and a life-expectancy factor; it is not one-tenth of the inheritance. Plan terms may require a faster payout. IRS: Publication 590-B.

What can a surviving spouse do that a child cannot?

A surviving spouse is an eligible designated beneficiary, so the US rules do not force a spouse into the 10-year rule or a cash-out. A spouse may roll the account into their own IRA; a sole spouse beneficiary may also treat an inherited IRA as their own or keep beneficiary treatment. IRS: Publication 590-B; Publication 575.

Keeping beneficiary status can matter for a younger spouse: payments after death generally qualify for the death exception to the US 10% early withdrawal tax, which a spouse gives up by treating the account as their own. IRS: Publication 590-B.

US rollover and election rules decide US tax. Canada separately taxes a payment out of the arrangement and follows a distribution that US law deems made, so confirm the Canadian result before retitling or moving the account. Income Tax Act, subsection 56(12).

How much US tax is withheld, and does the treaty lower it?

For a Canadian resident who is a US nonresident for tax purposes, the usual starting point is 30% withholding on the US-source distribution. The Canada–US treaty caps US tax on a qualifying periodic pension payment at 15% of the gross payment. IRS payer instructions apply this to a traditional IRA payment to a nonresident; a Roth IRA needs its own check. IRS: Publication 515, income code 15; IRS: Forms 1099-R and 5498 instructions; treaty, Article XVIII(2)(a).

Article XVIII does not define "periodic pension payment", so a yearly payment or a 10-year-rule withdrawal is not established as periodic by its label. Settle that with the payer before choosing installments or a cash-out. Treaty, Article XVIII; IRS: Publication 515.

Give Form W-8BEN to the payer, not the IRS, before the payment. Claim treaty benefits with a US SSN or ITIN or the tax identification number your country of residence issued to you. A signed form usually expires on the last day of the third succeeding calendar year, so renew it before later payments. If you move to the United States or out of Canada, or become a US citizen or resident alien, tell the payer within 30 days. IRS: W-8BEN instructions.

A US state generally cannot tax an IRA or 401(k) payment to someone who is not a resident or domiciliary of that state. 4 U.S.C. section 114.

Must I file a US return, and can I recover excess withholding?

A US nonresident may need Form 1040-NR if the correct US tax was not fully withheld, if you owe an additional tax on a qualified plan or IRA such as the excise tax on a missed minimum (Form 5329 alone if that is your only reason), if another filing requirement applies, or to claim a refund. Fully withheld income reported under the non-business-income rules can fall outside the filing requirement, but the classification of an inherited payment must be checked. IRS: Form 1040-NR instructions.

A calendar-year Form 1040-NR with no wages subject to US withholding is due June 15 of the next year. The instructions put a US-source pension or annuity that is not effectively connected with a US business on Schedule NEC, line 7, in the column for the rate that applies; that schedule has no separate IRA line, so confirm where an IRA payment goes. Attach Form 1042-S or 1099-R if tax was withheld, list a treaty claim on Schedule OI, item L, and check whether Form 8833 is required. IRS: Form 1040-NR instructions; Schedule NEC.

For reading Form 1042-S, ITIN rules and refund deadlines, see US tax withheld on payments to Canadians.

A refund needs a legal reason, such as excess treaty withholding or an incorrect taxable amount; low Canadian income alone is not one. IRS: Form 1040-NR instructions.

How does Canada tax inherited IRA or 401(k) payments?

Taxable inherited retirement payments generally enter a Canadian resident's income when received. Canada's rule for a payment out of a foreign retirement arrangement includes it, except to the extent the source country would not tax it if you lived there. CRA's guidance tells IRA recipients to contact it and does not address heirs, so how an heir's IRA or 401(k) payment is classified is not settled there. Inheriting the account does not by itself exempt later withdrawals. Income Tax Act, paragraph 56(1)(a).

Report gross foreign pension income in Canadian dollars before US withholding, at the Bank of Canada rate for the day received or, for payments at different times, the average annual rate. CRA sends foreign pension income to line 11500 and a lump-sum payment to line 13000, but its line 13000 page describes lump sums from a pension or deferred profit sharing plan paid when you leave the plan. Neither page clearly covers an inherited IRA cash-out, so confirm the line before filing. A treaty-exempt portion may qualify for a line 25600 deduction. CRA: line 11500; CRA: line 13000.

How do I claim Canadian credit for US tax?

Eligible US income tax can reduce Canadian tax through a foreign tax credit, capped at the Canadian tax otherwise payable on that net foreign income. The federal claim uses Form T2209 and line 40500; the provincial credit uses Form T2036 and the Form 428 line. In Quebec, skip T2036 and use Revenu Québec's form TP-772-V. CRA: foreign tax credit; Revenu Québec: form TP-772-V.

Use the US tax finally payable, not automatically every dollar withheld. CRA excludes tax refunded or refundable, and withholding above an applicable treaty rate; seek that excess from the US authorities, and review your Canadian credit if a US refund later changes the tax. A credit cannot guarantee full recovery. For the detailed calculation, see Foreign income on a Canadian return. CRA: foreign tax credit folio, paragraphs 1.33–1.35.

Is an inherited Roth IRA tax-free in Canada?

An inherited Roth IRA is not automatically tax-free in Canada; US and Canadian treatment must each be established. For US tax, most withdrawals from an inherited Roth IRA are tax-free, but earnings can be taxed if the Roth account is less than five years old. IRS: beneficiary rules; Publication 590-B.

CRA describes treaty relief for Roth distributions and an election protecting undistributed growth. Its election procedure is framed around an owner becoming Canadian resident; it does not settle an existing resident's inherited Roth election deadline or whether the owner's election carries over. How an owner files that election is in US retirement accounts in Canada. CRA: Roth IRA folio, paragraphs 1.9–1.23.

Contributions made while Canadian resident can affect treaty protection. Cross-border tax review covers an inherited Roth: bring the account statements and contribution records.

Should I cash out the account or spread withdrawals over time?

Spreading payments can avoid concentrating income in one year, but annual minimums and the final payout deadline still constrain the choice.

Compare net cash in Canadian dollars after final US tax and usable Canadian credits, using your other income and province. Treaty, Article XVIII; IRS: Publication 590-B; CRA: foreign tax credit.

Must I report the inherited account on Form T1135, and what is its cost?

Some foreign retirement interests are excluded from T1135 reporting: CRA excludes interests in trusts governed by foreign retirement arrangements and certain qualifying pension trusts. Confirm that an inherited IRA or 401(k) keeps that classification. CRA: foreign property exclusions; Income Tax Act, sections 233.2 and 233.3.

Roth reporting needs a separate check: CRA's exemption depends on an election and no Canadian contribution, and inherited election treatment needs confirmation. CRA: Roth IRA folio, paragraphs 1.22–1.23.

If money leaves the plan and stays in an ordinary US bank or investment account, assess that property separately. T1135 generally applies when total specified foreign property's cost exceeds C$100,000 in Canadian dollars at any time during the year, and it is due by your return's filing-due date, April 30 for most people. Income Tax Act, section 233.3.

For reportable property acquired by inheritance, the Income Tax Act deems you to acquire it at its fair market value (paragraph 69(1)(c)), and CRA states that the cost amount is that value at the time the inheritance was received, not the deceased's original purchase price. Neither source says whether that time is the date of death or the date the property was transferred to you, so confirm which and keep both valuations. This cost does not erase taxable retirement distributions. For wider rules and penalties, see Foreign property and affiliate reporting. CRA: T1135 questions and answers.

What if the custodian will not pay me, or I already cashed out?

If a provider refuses to pay or keep the account, ask for the reason in writing and the steps it needs; a missed mandatory withdrawal needs prompt tax review. If it cannot keep an inherited account for a Canadian resident, look for a receiving custodian and a properly titled direct transfer before authorizing payment. Provider acceptance is operational, not a government rule; estate asset release belongs in Settling an estate across the border.

If a non-spouse heir already received cash, do not assume a rollover within 60 days can put it back into an inherited IRA; required minimum distributions cannot be rolled over either. Reconstruct the gross distribution, withholding and payment date, then check both returns. IRS: Publication 590-B; Publication 575.

A missed required withdrawal can trigger a US 25% excise tax on the shortfall. It drops to 10% if you take the missed amount and file a return reflecting the tax within the correction window, which ends at the earliest of the mailing of a deficiency notice, assessment of the tax, or the last day of the second tax year that begins after the year the tax applies. Part IX of Form 5329 reports it. For reasonable error, attach a statement of explanation to request a waiver while you fix the shortfall. Provider delay does not automatically waive the tax. IRS: Publication 590-B, excess accumulations; Form 5329 instructions.

If the owner died in 2025 or later without taking that year's minimum, the tax on that amount is waived automatically if the heir takes the missing amount by the later of the heir's filing deadline (with extensions) for the year that includes the death year and the end of the following calendar year. Regulation 54.4974-1(g)(3).

If the owner died before the required beginning date and an eligible designated beneficiary defaulted into life-expectancy payments (without electing them) but missed them, the tax is also waived automatically when the heir elects the 10-year rule by the end of the ninth calendar year after the year of death. Regulation 54.4974-1(g)(2).

Example

Illustrative only: an adult child living in Ontario inherits a US$100,000 traditional IRA from a parent who died before the required beginning date. The child is an ordinary designated beneficiary, so the account must be emptied by December 31 of the tenth year after the death year, with no annual minimum before then.

The child receives a gross US$20,000 payment, which leaves about US$80,000 (before growth or loss) for the tenth-year deadline. Assume it qualifies as periodic under the treaty, the payer accepts the treaty claim, the full amount is taxable, and withholding is 15%: the payer withholds US$3,000 and sends US$17,000. If the payer instead treats it as not periodic and applies 30%, it withholds US$6,000 and sends US$14,000.

At an illustrative C$1.40 per US$1, the Canadian income is C$28,000 in either case, not the cash received. The final eligible US tax is C$4,200 at 15%, or C$8,400 at 30% if that is the final US tax. Canadian foreign tax credits may offset it within the applicable limits; they do not make the payment a tax-free inheritance. A full cash-out or a parent who died after the required beginning date changes the analysis.

Different for you?

• You are considering a lump sum, spouse ownership election, inherited Roth transfer or correcting a missed withdrawal: these choices affect deadlines, treaty treatment and credit recovery. Bring the beneficiary documents, plan terms, payment history and tax slips to cross-border tax review.
• You are, or become, a US citizen, green card holder or US tax resident: the nonresident route here (Form W-8BEN, nonresident withholding, Form 1040-NR) no longer fits, and the payer needs notice within 30 days. For US-person filing and credit rules, see Americans living in Canada. If you meet a US residency test but are Canadian resident under the treaty tie-breaker (Article IV), see Snowbirds and US residency.
• The account is your own, or you want to move US retirement money to an RRSP: see US retirement accounts in Canada.
• The owner lived in Canada: the US payout rules above still apply to you. Whether the owner's final Canadian return reports the account needs separate review; see Taxes when someone dies and bring the statements to cross-border tax review.
• You inherited a Canadian RRSP, RRIF or TFSA as a US person: see Inheriting Canadian registered accounts as a US person.