The Roth IRA is equivalent to the Canadian TFSA. Any contributions that you do make in those accounts are all post-tax.
America's Roth IRA. Canada's Tax-Free Savings Account (TFSA) is fairly similar to the United States' Roth IRAs. Both of these retirement-focused vehicles are funded with after-tax money (there's no deduction for the contribution), but they do grow tax-free, and withdrawals are not taxed.
The Canadian equivalent of a Roth IRA is a TFSA. Although the plans have differences, there are significant similarities. A Roth IRA and a TFSA are funded with after-tax dollars, and the growth and income earned in the account can be free from taxation if the rules are followed.
The TFSA is comparable to the RRSP if the tax savings for your RRSP contribution deductions equal the tax rate on your withdrawals (as in Example 2: 45% deduction rate, 45% tax rate).
Unfortunately, TFSA contributions can't be used to lower your taxable income. This means there is no way to decrease your income tax when contributing to a TFSA. For high income earners this makes an RRSP more appealing.
A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement.
The American and Canadian systems provide many similar benefits to retirees with similar types of tax-advantaged accounts that allow people to save for retirement. But Canadian retirees enjoy a lower poverty rate than those on the other side of the border.
A TFSA is similar to a Roth individual retirement account in the United States, although a TFSA has no withdrawal restrictions, such as the unqualified withdrawal penalty of the Roth IRA.
The IRS may consider TFSAs offered in trust-type arrangements to be foreign grantor trusts. Thus, if the RESP or TFSA contributor (grantor) is a US citizen, all interest, dividends, and capital gains on the amount invested must be reported annually for US tax purposes.
That is because the United States does not recognize a TFSA similar to an RRSP or RRIF for tax deferral purposes –and therefore even though the stock and bonds may be wrapped in a TFSA, they would still presumably be taxable unless the taxpayer was to make a treaty election if they qualify.
TFSAs, or Tax-Free Savings Accounts, can be excellent tax-sheltered accounts that allow contributed funds to grow tax-free. That means no taxes on interest earnings, dividends, or capital gains. What's more, funds can be withdrawn at any time without penalty for account holders.
Tax Benefits: Capital gains are tax-free in a TFSA, allowing for long-term growth.
Is there a U.S. side to a TFSA? Yes, you can hold and settle trades in U.S. dollars in your TFSA. You can also contribute and withdraw in U.S. dollars if you have an RBC U.S. dollar bank account.
If you've always contributed the maximum amount into your TFSA, the most you can put in is $7,000 for 2024. But if you never contributed before and turned 18 in 2009 or earlier, you may be able to contribute up to $95,000.
Canadians earning between $1 and $4,999 have an average TFSA balance of $18,994, which is surprisingly high given their limited income. Those earning $5,000 to $9,999 hold $15,879, and for $10,000 to $19,999, the estimated average TFSA balance is $20,456.
Canada's natural beauty, high-quality health care and proximity to the U.S. make it an attractive home for American retirees. Canada does not offer a retirement visa, so retirees must obtain a residence permit through work skills, education, family sponsorship or business opportunities.
Overall, Canada is more affordable than the US, but the US has a higher median income. Comparing the cost of living in both countries is tricky because living costs vary dramatically within each city. It's important to consider the hidden costs and savings of public goods and services when comparing costs of living.
If you have Social Security credits in both the United States and Canada, you may be eligible for benefits from one or both countries. If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.
You're never too old to fund a Roth IRA. The earlier you start a Roth IRA, the longer you have to save and take advantage of compound interest. Even when you're close to retirement or already in retirement, opening this special retirement savings vehicle can still make sense under some circumstances.
You must take your first required minimum distribution for the year in which you reach age 73. However, you can delay taking the first RMD until April 1 of the following year. If you reach age 73 in 2024, you must take your first RMD by April 1, 2025, and the second RMD by Dec. 31, 2025.
An obvious disadvantage of a Roth IRA is its non-tax-deductible contributions. However, it can be offset by its tax-free distributions, especially when the future marginal tax rate is expected to be higher than the current marginal tax rate.