IRA, Roth IRA and 401(k) Accounts for Canadian Residents: the Article XVIII(7) Election, Its Deadline and T1135
Published by 
Steffan Kharmaaiarvi, founder
Clients who move from the United States to Canada usually bring a traditional IRA, a Roth IRA, a 401(k), or all three. Canada treats them differently: a traditional IRA keeps its tax deferral automatically, a 401(k) relies on the plan's terms and a treaty election, and a Roth IRA's growth becomes taxable in Canada every year unless a one-time election is filed by a deadline that falls a few months after arrival. This note sets out the rules from the Income Tax Act, the Canada–US treaty and CRA's Roth IRA folio, an illustrative worked example and what Borderfolio shows. It is decision support for professional review, not tax advice.
Traditional IRA: a foreign retirement arrangement
The Income Tax Act defines a foreign retirement arrangement as a prescribed plan (s. 248(1)), and Income Tax Regulations s. 6803 prescribes plans to which subsection 408(a), (b) or (h) of the US Internal Revenue Code applies: the traditional IRA. CRA's Folio S5-F3-C1 (¶1.25) confirms that income in these IRAs is not currently taxable in Canada. Payments out of a foreign retirement arrangement are included in income to the extent they would be taxable in the US if the client lived there (s. 56(1)(a)(i)(C.1)).
401(k): not on the prescribed list
A 401(k) is not a plan under IRC 408(a), (b) or (h), so it is not a foreign retirement arrangement. Article XVIII(7) of the Canada–US convention lets a natural person who is a beneficiary of a pension arrangement in the other country elect to defer tax on income accrued in the plan but not distributed. How Canada treats a 401(k) without that election depends on the plan's terms; advisers should confirm it with the client's tax preparer.
Roth IRA: the election and its deadline
The treaty's definition of pensions includes a Roth IRA (Art. XVIII(3)(b)). Under Canadian domestic law, though, a Roth IRA lacks the deferral of a registered plan, so income accrued in it is generally taxable in Canada each year (Folio ¶1.2 to 1.3). The fix is the Article XVIII(7) election:
- One-time and irrevocable, one election for each Roth IRA (¶1.15), with no further election needed in later years (¶1.19).
- Deadline: on or before the filing-due date for the tax year in which the client became resident in Canada (¶1.16). For most individuals that is 30 April of the following year, or 15 June if the client carried on a business in the year (s. 150(1)(d)). A late filer should contact CRA's Competent Authority Services Division (¶1.16).
- How: by letter to the Competent Authority Services Division with the details listed in ¶1.17 (names, SIN and SSN, trustee, account number, dates and balances) and a signed statement electing deferral (¶1.17 to 1.18).
- No contributions while resident. A "Canadian contribution" splits the Roth: income after the first one is taxable each year, while the balance before it stays protected (¶1.12 to 1.13). Rollovers from another Roth IRA or a Roth 401(k) do not count; conversions from a traditional IRA or qualified plan do (¶1.14).
Withdrawals
Under Article XVIII(2)(a) of the treaty, US tax on a periodic pension payment to a Canadian resident may not exceed 15% of the gross amount. The IRS's treaty table 1 notes for Canada that the 15% rate does not apply to a lump-sum payment. Canadian tax on the payment is then reduced by the foreign tax credit for the US tax.
T1135 and departure
- T1135. Specified foreign property excludes an interest in a trust described in para. (a) or (b) of the "exempt trust" definition (s. 233.3(1), para. (n)); para. (a) is a trust governed by a foreign retirement arrangement and para. (b) a tax-exempt foreign pension or retirement trust (s. 233.2(1)). For a Roth IRA, the Folio says that if the election is filed and no Canadian contribution made, the Roth need not be reported on T1135 (¶1.22); otherwise it must be (¶1.23).
- Leaving Canada. A foreign retirement arrangement and a superannuation or pension plan are "excluded rights or interests" (s. 128.1(10)), outside the departure tax.
A worked example (illustrative)
A client became resident in Ontario on 1 August 2025, employed, not self-employed. Round, illustrative figures:
| Account | Balance (USD) | Canadian treatment | Action |
|---|---|---|---|
| Traditional IRA | 300,000 | Foreign retirement arrangement: growth not taxed until paid out | None while invested |
| 401(k) | 200,000 | Depends on the plan; deferral by Art. XVIII(7) election | Confirm with the tax preparer |
| Roth IRA | 150,000 | Growth taxable each year unless elected | Election due by 30 April 2026 |
- Deadline. Residence began in 2025, so the Roth election was due by the 2025 filing-due date: 30 April 2026. Today, on 3 November 2026, that date has passed; the route is to contact the Competent Authority Services Division.
- What is at stake. If the Roth earns 6% in 2026, that is 150,000 × 6% = USD 9,000 of accrued income that Canada would generally tax for 2026 without the election, although no money leaves the account.
- Withdrawal. A periodic IRA payment of USD 20,000 bears US tax of at most 20,000 × 15% = USD 3,000; a lump sum does not get the 15% cap.
- Contributions. A new Roth contribution in 2026, other than a Roth-to-Roth rollover, would make every later year's growth taxable in Canada (¶1.12).
What Borderfolio shows
For a client resident in Canada with an account marked with a US traditional IRA, Roth IRA or 401(k) wrapper, the Cross-Border tab adds US retirement accounts in Canada: each account's treatment and action, the Roth election deadline worked out from the profile's "resident since" date, and the 15% cap on periodic payments with the lump-sum exception. Severity rises to attention when a Roth IRA is on file.
- These accounts are left out of the T1135 cost test and the departure tax estimate. Leaving out a Roth IRA is a reading of the pension-plan paragraph, labelled as such.
- US withholding inside the accounts follows the wrapper (usually nothing).
Not modelled: whether an election was filed (not on file: confirm with the client's records), how Canada classifies a 401(k) without the election, the Canadian tax on withdrawals, and US tax on the client as a US person. US persons abroad are covered in portfolio software for advisors to US citizens abroad.
Frequently asked questions
Is a traditional IRA taxed in Canada while the client is resident?
Not while the money stays invested. A traditional IRA is a foreign retirement arrangement (s. 248(1) and Regulation 6803), and its income is not currently taxable in Canada. Payments out are included in income to the extent they would be taxable in the US.
When is the Roth IRA treaty election due?
On or before the filing-due date for the tax year in which the client became resident in Canada: normally 30 April of the next year, or 15 June if the client carried on a business. It is a one-time, irrevocable election for each Roth IRA.
Can a Canadian resident keep contributing to a Roth IRA?
A contribution made while resident in Canada, other than a rollover from another Roth IRA or a Roth 401(k), makes the income earned after it taxable in Canada each year. The balance before the first such contribution stays protected.
Does a Roth IRA go on Form T1135?
Not if the treaty election was filed and no Canadian contribution was made, according to CRA's Roth IRA folio. Otherwise it is reported as the form's instructions require.