SATURDAY, DECEMBER 20, 2014
Disclaimer: I'm not a tax person. Some of this may be wrong. This is a summary of what I've found and researched, but if you see anything wrong, please leave a comment and I will update it.
Various people have been asking me recently about this sort of stuff and what they should do, so I decided to write something that will hopefully clarify what options are available to Canadians.
A little background...
In Canada, there are two primary account types used for retirement. First, you have the RRSP, which is a tax deferred account. An advantage of this is that any amount you put into the RRSP reduces your taxable income now, and instead pay income when you withdraw from it. If you anticpate having a lower income in retirement (which is a typical case) you would pay less income tax over your lifetime overall. Another advantage is that any amount saved in income tax in the present can be used for additional investment. The second type of account is the TFSA. In this account you put in post-income tax money, but any investment gains in this account are no longer taxed. The yearly contribution limit for this account in $5500.
In America, you have the 401k and the IRA. These both come in two forms: Roth and traditional. The traditional forms are tax deferred accounts, so contributions are deducted from present income, but will incur income tax upon withdrawal. The Roth forms require post-tax deposits, but any gains will not be taxed, assuming you withdraw at age 59.5 or above. As far as I understand, not every employer gives access to a 401k, but you can always create an IRA on your own. The maximum contribution for 401k in 2015 is $18000 and $5500 for IRA. Rf your income is over $114k, access to Rotth accounts starts to phase out, stopping completely at $129k. If your income is over $129k, you can still contribute to a traditional IRA / 401k.