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In Canada, the most popular accounts for holding investments and saving money are Tax-Free Savings Accounts and Registered Retirement Savings Accounts. In the US, you have a Roth IRA, also known as an Investment Retirement Account. However, in the US, there’s also a 401K.
Can You Get An IRA in Canada?
While Roth IRAs aren’t available in Canada, they’re essentially the American equivalent of TFSAs. They just have slightly different rules but allow the same capacity to save.
Comparison of TFSA and Roth IRAs
While both Roth IRAs and TFSAs are similar, there are some significant differences. Let’s take a look at how each of these work.
Roth IRA
A Roth IRA account is a type of investment retirement account that’s available in the United States. It’s also one of the different types of Roth accounts. In this type of retirement account, you invest your after-tax dollars for tax-free growth. These types of accounts don’t receive tax benefits, but you can grow everything you invest and earn tax-free.
That said, you can’t take out the funds whenever you want. In order to withdraw any funds, you have to be at least 59.5 years old and have the account open for at least 5 years.
There are some restrictions on opening a Roth IRA. You have to meet the minimum income qualifications, but you don’t have to meet an age requirement. However, there are no required withdrawals either. You can take out how much or how little you want of Roth IRA contributions from your account tax-free as long as you have Roth IRA contributions eligible to withdraw. There are some restrictions on how much you can invest.
Roth IRAs aren’t the only kind available as a retirement savings strategy; there are also traditional IRAs and rollover IRAs. Traditional IRAs come from your pre-tax income and gain tax-deferred growth, which will provide tax relief for your tax bill. Rollover IRAs are traditional IRAs where retirement funds are transferred from another retirement savings account.
If you’re rolling over to an IRA, this is called a Roth IRA conversion. These other IRAs have required minimum distributions, which are the minimum amounts you’re to withdraw from your IRA every year.
TFSA
In Canada, the closest thing to a Roth IRA is a TFSA, also known as a Tax-Free Savings Account. In order to open one of these accounts, you don’t have to meet an annual income requirement, but you do have to be 18 years of age.
Once you open a TFSA, you have to stay within annual contribution limits. If you don’t use your full limit, it can be forwarded to the next year. However, if you go over your total TFSA limit, then you may have tax consequences. While this account isn’t tax deductible, there are tax benefits since you don’t pay taxes on your interest earned.
Unlike Roth IRAs, TFSAs in Canada aren’t locked accounts. You can withdraw the funds from a TFSA at any time that you’d like. However, it can take time before the funds are removed from your TFSA limit, so replacing the funds right away, if you were at your limit, can end up creating a tax hit you need to pay for tax purposes. Canadian citizens or Canadian residents for tax purposes, even those who live cross border, are the only ones able to open TFSAs.
Here are the contribution limits for TFSAs in Canada.
Year | TFSA Contribution Limit |
2009 to 2012 | $5,000 |
2013 and 2014 | $5,500 |
2015 | $10,000 |
2016 to 2018 | $5,500 |
2019 to 2022 | $6,000 |
2023 | $6,500 |
2024 | $7,000 |
401K
Another type of retirement account in the United States is a 401 K. In the US, 401 K’s are another type of tax-advantaged retirement savings plan. It’s essentially a workplace pension plan that your employer and you can contribute to. Depending on where you work, there are actually two different options.
Traditional 401K
Traditional 401K’s use contributions that are pre-tax dollars. These contributions reduce your taxable income, which gives you some tax advantages. Any withdrawals you make in retirement, however, are then taxed at your current income tax rate which can negate the tax break.
Roth 401K
Roth 401K’s are slightly different from traditional 401K’s. These don’t invest your pre-tax income; they invest your after-tax income. There’s no tax deduction for these types of accounts. However, there are no taxes to be paid on any withdrawals.
401K’s Vs TFSAs
In some ways, 401K’s are actually similar to TFSAs. Roth 401K’s take contributions of after-tax income just like TFSAs. That said, the main difference is that TFSAs allow for withdrawals at any point. Roth 401 K’s can only be used in retirement but is popular since there’s no tax to be paid when the funds are used. The largest difference is that TFSAs involve Canadian taxation and 401 k’s involve US taxation with Internal Revenue Services,
Canadian Equivalent to a 401K
The comparable account to a 401K is an RRSP, also known as a Registered Retirement Savings Plan. Specifically, Group RRSPs are the most similar to traditional 401K’s. Group RRSPs are accounts that employers set up for their employees to save money for retirement. Employers match their employee contributions and act as a workplace pension.
In Canada, those who have Group RRSPs invest the funds from their paycheck into an RRSP. They can often determine how much they want to invest and where they want to invest it. THe employer will determine where it’s mutual funds or something else, though. Most employers have a cap on how much they will match their employees' RRSPs. You are able to invest more than the employer is willing to match. You can often choose how you want the funds invested as well.
Since your employer sets up the RRSP, you often have to talk to them if you want to withdraw the funds early. There’s often a limit as to how much you can withdraw before getting permission. If you withdraw, though, you will have to pay withholding taxes.

How RRSPs Work in Canada
RRSPS, also known as Registered Retirement Savings Plans, is a type of retirement savings account in Canada where the funds are to be used as regular income during retirement. These accounts are registered with the Canadian government and provide a Canadian income tax incentive. However, there are a few rules when it comes to RRSPs.
The most common type of RRSP is a personal RRSP. You create these types of accounts yourself through a bank or financial institution. You can also get them through online brokerages. When you open these accounts, you can choose what risk you want to invest in and get updates every quarter on your accounts process.
Depending on where you decide to open up your RRSP, there might be a minimum investment. After that, you can invest as much as you like. Keep in mind that RRSP has annual contribution limits. Currently, the annual contribution limit is $31,560 for 2024, or 18% of your annual income. You earn a tax incentive with any deposits, and no income taxes are taken until you withdraw the funds.
Withdrawing From An RRSP in Canada
While savings in an RRSP are intended to be used for retirement, they can be used earlier. That said, if you do withdraw your funds early, there could be a penalty you have to pay depending on if you want to withdraw the funds in order to purchase your first home, then you could withdraw the funds with no penalty. In order to do so, you have to prove that you purchased your first home.
From there, you’re able to take out up to $30,000 without a penalty, and you have 15 years to pay back the money. You also don’t have to start paying back the funds until 2 years after the purchase is finalized. This is called the Home Buyers Program.
If you’re going back to school, you can also take out funds from your RRSP penalty-free in order to further your education. This program is called the Lifelong Learning Plan and allows you to take out the funds and pay them back within 10 years. Any funds not paid back will be included as part of your earned income.
If you’re looking to take out early withdrawals for any other reason, then you will have to pay withholding taxes. The amount you pay in withholding taxes is based on how much you choose to take out of the account. For amounts $5,000 and under, you pay 10%. For amounts between $5,000 and $15,000, the withholding tax is 20%. For amounts of $15,000 and over, the withholding tax is 30%.
Roth IRA Vs RRSP
Roth IRAs differ greatly from traditional RRSPs. They’re more similar to TFSAs because they use your after-tax dollars instead of your pre-tax income, which is what RRSPs do. However, just like RRSPs, these funds are meant to be used for retirement.
You have to reach a certain age before you can withdraw the funds penalty-free. However, if you’re looking for the equivalent of a Canadian RRSP, that would be a traditional 401k.
Is A TFSA Better Than A Roth IRA?
Both Roth IRAs and TFSAs are a great way to start saving for retirement. Both of these accounts allow for tax free withdrawals and after tax money contributions. So while these accounts are similar in many ways, the TFSA does have some advantages.
The first advantage to a TFSA is that there’s no income minimum needed to open the account, so they aren’t only for high-income earners. All you have to do is be 18 years of age, and you can open one with your bank or financial institution or another financial institution. Unlike Roth IRAs, you can also withdraw funds from your TFSA whenever you need them without penalty.
If you do this, though, you have to factor in that they can’t deduct contributions from your contribution room until the next year, so you could end up going over it depending on how much you invest afterward. You can also put any unused contribution room into the next year.
Difference Between High-Interest Savings Accounts and TFSAs in Canada
In Canada, Tax-Free Savings Accounts aren’t the only way to save your after-tax income and earn money. Another way you can do this is with a high-interest savings account. These accounts are available through your bank or financial institution and allow you to earn your funds at a competitive interest rate. While you may not earn as much as you would in a TFSA where you invest, it is risk-free. There are also no contribution limits when it comes to HISAs.
HISAs are a great way to invest your funds for a shorter period of time or save money for a specific period. You can save as much as you’d like in these accounts, and you don’t have to invest them in order to earn any money. While you also don’t have to invest to add money to a TFSA, you won’t earn any money unless you do.
Summary
When it comes to investing for retirement in Canada, the options available to you are similar to those in the United States. In the United States, the most popular retirement options are 401 K’s, Roth 401 K’s and Roth IRAs. Each of these options helps you save money for retirement. You can do this whether or not you get a pension from your employer.
Canada doesn’t offer these same retirement savings options. They have RRSPs, Group RRSPs, and TFSAs. All of these are different forms of investment accounts that allow you to save your money. That said, there are rules depending on which type of account you have.
Group RRSPs are controlled by your employer because they match your contributions. Depending on who your employer is, you can choose to invest the funds however you wish, and you also have access to them if you ever quit your job. Then, you can turn it into a personal RRSP or withdraw the funds.
Personal RRSPs can be invested in however you like. That said, if you choose to withdraw before it is converted into an RRIF, also known as a Registered Retirement Income Fund, then you will have to pay withholding taxes. These are taken right off the top, so you don’t owe taxes later. TFSAs, on the other hand, allow you to withdraw at any time without penalty. No matter where you choose to invest your money, in these or other retirement accounts, saving for retirement is always a good idea.