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Canada vs. US Retirement Funds

Canada vs. US Retirement Funds

Retirement planning involves a wide array of considerations. From determining the best type of investment and accounts to be included in your retirement plan, to budgeting for your future endeavors, sure bring about a lot of challenges that you must prepare for head-on.

Whether you are born and about to retire in Canada or in the United States, both these government offer incentive and investment plans for their retirees. Let’s take a look and compare at the US and Canada retirement benefits:

RRSP vs. Traditional IRA

Canada offers a number of alternatives that its citizens can take advantage of to avoid paying excessive taxes. One of which is the Registered Retirement Savings Plans (RRSP) which allows its investors to receive tax deductions on their yearly contributions which result in time value of money advantages, giving them the benefits of compounded returns. Contribution to this fund can be made until the age of 71, and the government sets aside for the individual an amount subject to a maximum limit. Withdrawals to the RRSP can be made at any time, but are classified as taxable income subject to withholding taxes.

On the other hand, American retirees contribute to the Traditional IRA that is structured to provide them with benefits, making contributions tax-deductible and capital gains are tax deferred until distributions out of the account are realized.

Age stipulations to both RRSP and IRA are similar, allowing them to contribute to their respective funds until at the age of 70 ½ , at which point mandatory distribution of funds is require.

Maximum contribution to the Traditional or Roth IRA is the smaller of $5000 or the amount of your taxable compensation for the taxable year; while RRSP allows up to $20,000.

TFSA vs. Roth IRA

The Tax-Free Savings Account (TFSA) of Canada is similar to the Roth IRA of U.S. Both of these retirement funds are tax-exempt accounts as they are funded with after-tax money, providing growth tax-free even when funds are withdrawn.

TFSAs foster for long-term retirement planning; in fact, Canadian residents over the age of 18 can contribute $5,000 annually to this account. While Roth IRA allows for contribution regardless of age though, maximum contribution remains at $5,000; and $6,000 for those over the age of 50.

Regardless of where you will be retiring and the kind of contributions you can make, experts suggest that the sooner you save for the future, the better; however, when you deem it a bit late, aim for at least the age of 50 to start taking saving really seriously.

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