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Is Canadian RRSP equivalent to Traditional IRA?
In comparison, Canadian RRSP is equivalent to traditional IRA. The IRA (individual retirement account) and RRSP (Registered retirement savings plan) offer the same financial path and tax advantages in savings for retirement.Comparison of Canadian RRSP and Traditional IRA
RRSP (Registered retirement savings plans) in Canada allows the tax payer to receive a deduction or adjustment to income to lower tax on yearly contributions. Moreover, the invested money in the plan grows tax-deferred. As a result, the benefits of compounded returns advanced. Besides, a person can make contributions until 71 years of age. Unlike the IRA early withdrawal penalty, RRSP carries not early withdrawal penalty. While the IRA (individual retirement account) in the United States has more limited contributions than Canadian RRSP, for the year 2020 and 2021, maximum contributions of $6000 per year are set by the Internal Revenue Service (IRS). Besides, those who are above 50 years of age you can have $1000 additional catch-up amount. Moreover, there is a penalty of 10% tax on withdrawal of funds before the age of 59 and a half in IRA.The U.S Residents and Citizens holders of the Canadian RRSP
Per law, there will no tax on growth of the RRSP in Canada even if you are a US resident or US citizen living in United States. Canada will impose a withholding tax, which is 25% if the distribution is by a non-resident of Canada. Furthermore, the withholding tax can be reduced to 15% if converted to RRIF for periodic withdrawal. An election under section 217 can be filed to reduce withholding tax if you qualify for certain benefits which can include tax treaties.Can you convert a Canadian RRSP to Traditional IRA?
No, because current law, the rules and regulations do not allow any Canadian RRSP to maintain the same tax-deferred status in both countries thus you cannot convert RRSP to IRA. In general, Canadian RRSP holders have these three options which include complete RRSP withdrawal, convert RRSP to an RRIF, and leave it and let it grow.1. Complete RRSP withdrawal
Complete RRSP withdrawal sounds easy and can help you make your tax filing simple in many ways. Few top reasons a complete withdrawal include; RRSP account is small, your age is under 59 and half and you immediately need funds.2. Convert RRSP to an RRIF to begin distributions.
It is another option, or you can say alternative for you is to convert the RRSP (registered retirement saving plans) to RRIF (Registered retirement income fund). Through this, you can start the smaller distributions annually as there is 15% tax withholding on RRIF rather than a 25% withholding tax on lump sum withdrawal.3. Leave it and Let it Grow
It is one of the easiest ways if you don’t need money on an urgent basis is to leave the money in the RRSP account and let it grow till the retirement age. Of course, you can longer contribute to your RRSP this also helps with less reporting in both the U.S. and Canada.Taxes
Canadian Retirement Plans tax in the U.S. can be extraordinarily complex and understanding how U.S tax works with Canadian RRSP is important. Per IRS, accrual of income in Canadian retirement plans like RRSP is taxable in the U.S. but due to U.S Canada tax treaty and IRS relief, income can be deferred. There is 25% tax withholding on RRSP distributions that will be imposed by Canada. However, an RRSP withdrawal counts towards U.S. income as well. Therefore, a large RRSP withdrawal may push you into an even higher U.S. tax bracket. Reporting of RRSP Distribution on U.S. 1040 Income Tax Return adds another wrinkle to the problem which should be understood deeply before filing a 1040 tax return. In IRA, contributions are tax-deductible, and even capital gains are tax-deferred, so this structure provides you with the same benefits. At the same time, the withdrawals or any distribution are taxed. 
