What is a Roth IRA?

IRA is an abbreviation of Individual Retirement Account. It is one of the registered retirement tools in the United States of America where you can contribute post-tax money into the account. The income returns and capital gains within a Roth IRA is not taxable.

Similarly, the withdrawals from Roth IRA are out of tax radar. One can withdraw funds from this account after he/she turns 59.5 years of age. Let’s Find out what Roth IRAs are equivalent in Canada.

What is the Roth IRA equivalent in Canada?

The equivalent of Roth IRA in Canada is TFSA. TFSA is an abbreviation of Tax-Free Savings Account which is registered with the federal government of Canada. Any Canadian resident who is 18 years or above can open a TFSA with a financial institution and can start contributing the funds. The earnings within a TFSA and the withdrawals are not taxed.

Roth IRA vs. TFSA - Similarities

• The maximum limit you can contribute into both these accounts, as of the current financial year is $6,000 per annum. For Canada, the currency will be CAD and for US it will be USD.

• The earnings within both Roth IRA and TFSA are not taxable – be it capital gains, income returns, dividends or interest.

• The withdrawals are not taxable in both the accounts.

• They are both registered with their respective governments.

• You can invest in cash, bonds, fixed deposits, mutual funds, ETFs within both the accounts.

• The contributions you make into both of these accounts cannot be claimed as a tax deduction from your assessable income.

• You can nominate beneficiaries and pass on your assets to your estate.

• Both the accounts are opened with an intention to save and grow money for the future.

Roth IRA vs. TFSA - Differences

• You can catch up unused contributions in the subsequent years in a TFSA, however with Roth IRA once you have missed out to contribute, you cannot carry forward the unused caps.

• The eligibility to open a TFSA is to be a Canadian resident who is 18 years or older. The eligibility of opening a Roth IRA is to be a US citizen with an earned income.

• You can take your money out of TFSA, whenever you want to, but you can take your money out of Roth IRA only after you turn 59.5 years of age.

Roth IRA and TFSA

It is noteworthy that both USA and Canada being developed countries are emphasizing the importance of retirement planning for their citizens through tax advantageous vehicles like Roth IRA and TFSA.