Just Opened an RRSP? This Vanguard S&P 500 ETF Has No Withholding Tax

U.S. ETFs like VOO are best prioritized for an RRSP to avoid the 15% foreign withholding tax on dividends.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga. Tony also provides independent content and marketing consulting services to various Canadian and U.S. ETF issuers. His editorial opinions for The Motley Fool remain independent and objective.

Published October 7, 2025 10:00 am EDT

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A Tax-Free Savings Account (TFSA) does what the name implies—it shields your investment gains and income from taxes. But there’s one exception: U.S. stocks and exchange-traded funds (ETFs) held in a TFSA still get hit with a 15% withholding tax on dividends.

You can sidestep this issue by sticking to growth companies that don’t pay dividends, but that’s not always ideal. For dividend-heavy ETFs, the tax drag adds up. The better solution is to use a Registered Retirement Savings Plan (RRSP).

Close up of an egg in a nest of twigs on grass with RRSP written on it symbolizing a RRSP contribution. — Source: Getty Images

What is an RRSP?

The RRSP is Canada’s main retirement savings account. Each year, you can contribute up to 18% of your earned income, capped at a set maximum. Contributions reduce your taxable income, giving you an upfront tax break, but withdrawals in retirement are taxed as income.

Since most people earn less in retirement than during their working years, the taxes you eventually pay are usually lower than what you saved when contributing, making RRSPs especially attractive for high earners looking to cut today’s tax bill.

Crucially, though, RRSPs get special treatment with U.S. securities. Thanks to the Canada-U.S. tax treaty, dividends from American stocks and ETFs are not subject to the 15% withholding tax if held directly in an RRSP. That makes the RRSP the perfect home for U.S. dividend-paying stocks and ETFs.

The best ETF for an RRSP

For most investors, the best U.S. ETF to hold in an RRSP is Vanguard S&P 500 ETF (NYSEMKT:VOO), which is currently the most popular ETF in the world based on assets under management.

It gives you exposure to 500 of America’s largest publicly traded companies across all 11 stock market sectors, weighted by market capitalization. That means the biggest firms make up a larger slice of your investment, while weaker companies gradually shrink in importance.

The ETF is also dirt cheap, charging just a 0.03% management expense ratio, or $3 annually on every $10,000 invested. With no withholding tax drag inside an RRSP, every dollar of dividends and growth is yours to keep until you withdraw in retirement.

The Foolish takeaway

If you’re looking to make the most of your RRSP, prioritize U.S. ETFs here instead of in your TFSA. VOO gives you broad exposure to the S&P 500, costs almost nothing to own, and avoids the dividend withholding tax altogether. For long-term retirement saving, it’s one of the most efficient tools available to Canadians.