FI Personal Finance Resources

The US/Canadian FI Glossary

The Ultimate US-Canadian FI Glossary

Photo credit: Marian Vejcik via Dreamstime

Roth IRAs, 401Ks, 529 plans—oh my! 

As a FI-savvy Canadian, you’ve no doubt come across these distinctly American terms on your favourite FI blogs and podcasts. 

Our southern neighbours have so many clever FI hacks to share—if only we could make sense of it all. (Then maybe we could figure out some Canadian analogues, and hack our own way to FI!)

Well, now there’s a resource that’ll help make things a bit easier!

Note: the infographic above is just for quick reference (click the image to download a hi-res PDF). Keep scrolling to see all the nitty-gritty details behind each account.

The US/Canadian FI Glossary

Finally—a resource to translate American FI terms into ‘Canadian’! The glossary below features a list of terms that are frequently used in the FI community. For each, a Canadian counterpart, similarities, and differences are listed. 

The glossary is split into three categories (see Table of Contents below). Click on the category name to navigate to it. Then, under each account/term, expand the tabs for more info. 

Glossary disclaimers

Now, I know you’re dying to dig into this financial nerdery, but first—some fine print:
  • This is not meant to be a complete guide to US/Canadian personal finance terms. It’s a brief overview of the major similarities and differences—from a FI perspective.
  • For brevity and ease of use, I don’t include every possible account or term out there, nor all the minutiae behind each (e.g. age restrictions, specific limitations, etc.) Please do your own research to ensure you fully understand the details behind each term.
  • This glossary is for general information only. Best efforts will be made to keep the glossary accurate and updated, but I cannot be held liable for errors and omissions.

Retirement accounts

🇺🇸 Roth IRAs are most like 🇨🇦 TFSAs

  • Contributions: Post-tax and not deductible.
  • Taxation: Investments grow tax-free in the account.
  • Contribution limits: The same (as of 2019): $6,000 (but see Differences section below for additional limits on Roth IRAs.)
  • Withdrawals: Can be taken tax-free anytime (but see Differences section below for limits on Roth IRA earnings withdrawals).
  • Unused contribution room: Unused Roth IRA contribution room is lost forever. Unused TFSA contribution room can be rolled over indefinitely.
  • Contribution limits: Higher income individuals may not be eligible to contribute to a Roth IRA. Also, Roth IRA and Traditional IRA contribution limits are total combined. TFSAs have no income limits, and contribution limits are not combined with other accounts.
  • Recontributing: Once you withdraw from a Roth IRA, you lose that contribution room forever. TFSA withdrawals can be replaced—but you have to wait until the calendar year following your withdrawal.
  • Withdrawal of earnings: Withdrawals from Roth IRA earnings may be penalized and/or taxed if you’re under 59 ½ or the account is less than five years old. Withdrawals from TFSAs are all the same—there is no differentiation between earnings or contributions. There are also no age or time restrictions for TFSA withdrawals.

🇺🇸 401Ks are most like 🇨🇦 Group RRSPs

  • Both are offered by employers.
  • Contributions: Pre-tax and deductible.
  • Taxation: Investments grow tax-free in the account.
  • Withdrawals: Taxed as ordinary income.
  • Recontributing: Not permitted—once you withdraw, you lose that contribution room forever.
  • Employer match: Employers will often, but not always, make a matching contribution into the plan.
  • Unused contribution room: Unused 401K contribution room is lost forever. Unused Group RRSP contribution room can be rolled over indefinitely.
  • Contribution limits (as of 2019): For 401Ks—$19,000. For RRSPs—18% of your income to a maximum of $26,500 (total combined with all other RRSP contributions).
  • Early withdrawals: Generally, you’ll be penalized for early withdrawals from a 401K. You’ll owe tax, but there’s no penalty for early withdrawals from Group RRSPs.
  • Employer match: In 401Ks, the employer match doesn’t count towards your contribution limit. In Group RRSPs, it does.
  • 403Bs, 457Bs, and TSPs are cousins of the 401K.
  • Their limits and rules are very similar to 401Ks, but they’re only for teachers and non-profit employees (403Bs), state and local government employees (457Bs), and federal government employees (TSPs).
  • In Canada, there are only Group RRSPs—there are no organizationally-distinct accounts.

🇺🇸 Spousal IRAs are most like 🇨🇦 Spousal RRSPs

  • Both are accounts where one spouse is the planholder, and the other is the contributor.
  • Meant for couples where one spouse earns significantly higher income.
  • Contributions: Pre-tax and deductible (for the contributing spouse).
  • Taxation: Investments grow tax-free in the account.
  • Withdrawals: Taxed as ordinary income (but see Differences section below for rules regarding withdrawal attribution).
  • Recontributing: Not permitted—once you withdraw, you lose that contribution room forever.
  • Unused contribution room: Unused Spousal IRA contribution room is lost forever. Unused SRRSP contribution room can be rolled over indefinitely.
  • Contribution limits (as of 2019): For Spousal IRAs—$6,000. For SRRSPs—18% of your income to a maximum of $26,500 (total combined with all other RRSP contributions).
  • Early withdrawals: Generally, you’ll be penalized for early withdrawals from a Spousal IRA. You’ll owe tax, but there’s no penalty for early withdrawals from SRRSPs.
  • Withdrawal attribution: Spousal IRAs are always taxed under the planholder. SRRSP withdrawals are only taxed under the planholder if no contribution has been made to any spousal RRSP in the year of withdrawal or the two preceding calendar years.

🇺🇸 Traditional IRAs are most like 🇨🇦 Individual RRSPs

  • Both are individual retirement savings plans.
  • Contributions: Pre-tax and deductible.
  • Taxation: Investments grow tax-free in the account.
  • Withdrawals: Taxed as ordinary income.
  • Recontributing: Not permitted—once you withdraw, you lose that contribution room forever.
  • Unused contribution room: Unused Traditional IRA contribution room is lost forever. Unused Individual RRSP contribution room can be rolled over indefinitely.
  • Contribution limits (as of 2019): For Traditional IRAs—$6,000 (total combined with Roth IRA contributions). For Individual RRSPs—18% of your income to a maximum of $26,500 (total combined with all other RRSP contributions).
  • Early withdrawals: Generally, you’ll be penalized for early withdrawals from a Traditional IRA. You’ll owe tax, but there’s no penalty for early withdrawals from Individual RRSPs.

US vs Canadian retirement accounts: two big differences

1. Income limits

In the US, contribution amounts for some accounts are subject to income limits. (That is, if you earn over a certain amount, you cannot contribute to certain accounts.) In Canada, there are no such limits on any retirement account.

2. Unused contribution room

In the US, unused contribution room in tax-deferred accounts does not roll over indefinitely like it does in Canada. You have to use it each year or lose it forever!

Other accounts

🇺🇸 529 Plans are most like 🇨🇦 RESPs

  • Both are education savings plans.
  • Contributions: No annual contribution limits, but overall contribution limits apply.
  • Taxation: Investments grow tax-free in the account.
  • Replacement of withdrawals: Once you withdraw, you can never put the money back in.
  • Overall contribution limits (as of 2019): For 529s—maximum account size at any one time of $235,000 to $529,000. For RESPs—lifetime limit of $50,000.
  • Government grants: Some states offer tax credits or deductions for 529 contributions. RESP contributions can receive a 20% government grant match, up to a maximum of $500/child/year (as of 2019), plus additional grants for low income families.
  • Withdrawals: Some 529 withdrawals are tax-free, and some are taxed. RESP withdrawals are taxed at the student’s tax rate (which is usually 0% or close to it).
  • Qualifying schools: 529 funds can be used for post-secondary, as well as elementary, middle, and high school. RESP funds can only be used for qualifying post-secondary schools.
  • Qualifying expenses: 529 funds can be used for tuition and fees, but there are specific limitations for room and board, books, and computers. Generally, RESP funds can be used towards all education-related expenses (but there are limitations—please do your own research!)

🇺🇸 ABLE Accounts are most like 🇨🇦 RDSPs

  • Both are long-term savings accounts meant to give individuals with disabilities extra financial stability.
  • Contributions: Post-tax and non-deductible.
  • Taxation: Investments grow tax-free in the account.
  • Withdrawals: Tax-free and can be taken anytime (but if there are grants in the RDSP, some of that money must be repaid).
  • Grants: There do not appear to be any government grants for ABLE Accounts. For RDSPs, account holders can apply for the Canada Disability Savings Grant (CDSG) and/or the Canada Disability Savings Bond (CDSB).
  • Contribution limits (as of 2019): For ABLE Accounts—$15,000/year, with maximum account size at any one time of $100,000 to $400,000. For RDSPs—no annual limits, but a lifetime limit of $200,000.
  • Withdrawal attribution: Withdrawals from ABLE Accounts are all the same—there is no differentiation between earnings or contributions. With DPSPs, contribution withdrawals are tax-free, but earnings and grant withdrawals are taxed under the planholder.

🇺🇸 CDs are most like 🇨🇦 GICs

  • Both are savings certificates with a fixed maturity date and specified interest rate.
  • Early withdrawals: Penalties apply.
  • Interest: Taxed as regular income.
  • Deposit insurance: CDs are insured by the FDIC up to $250,000 USD while GICs are insured by CDIC up to $100,000 CAD.

Accounts and terms with no counterpart

🇺🇸 American

  • A complex strategy to convert a Traditional IRA (like a Canadian RRSP) to a Roth IRA (like a Canadian TFSA).
  • Useful for high-income earners who’d otherwise be disqualified from Roth IRA contributions, and would prefer to pay taxes on the income now that so it’ll be tax-free later.
  • FSA stands for Flexible Spending Account.
  • Contributions are pre-tax, but not deductible.
  • Funds can be used tax-free for health or dependent care.
  • Funds must be used by the end of the year.
  • HSA stands for Health Spending Account.
  • Similar to FSAs, but contributions are deductible and the balance rolls over from year to year.
  • Funds can be invested, and the growth is tax-free.
  • Funds can be used tax-free for health care, and accumulated savings can be withdrawn tax-free after age 65.
  • A strategy that uses the Backdoor Roth strategy to create a “ladder” of tax-free Roth IRA funds.
  • The basic gist: you have to wait five years post-conversion to withdraw Roth IRA funds tax and penalty-free. If you do a Backdoor Roth conversion every year, after the first five years, you can withdraw some of it tax and penalty-free each year.
  • SEP stands for Simplified Employee Pension.
  • SEP IRAs are similar to Traditional IRAs, but they have higher contribution limits and are only available to small businesses and self-employed individuals.
  • SIMPLE stands for Savings Incentive Match for emPLoyEes.
  • SIMPLE IRAs are similar to 401Ks, but may be appealing to small businesses with 100 or fewer employees because they’re cheaper and less complex to administer.

🇨🇦 Canadian

  • LIRA stands for Locked-In Retirement Account.
  • LIRAs hold pension plan money you received from a company you no longer work for.
  • You can’t withdraw from or contribute to LIRAs.
  • When you reach age 55, you are allowed to convert your LIRA to a LIF—at which point you can start making withdrawals.
  • RRIF stands for Registered Retirement Income Fund.
  • All RRSPs must be converted into RRIFs by the end of the year you turn 71.
  • You can only withdraw from RRIFs—no contributions can be made.

What do you think of the glossary?

Feedback, edits, and suggestions are welcome! Also, feel free to link to, redistribute, or use the jpeg and PDF (as long as proper credit is given to Eat Sleep Breathe FI).

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4 Comments

  • Reply
    GYM
    February 12, 2019 at 11:37 pm

    This is lovely! Since blogging I have learned a lot of American terms, like 401Ks and 529 plans! We have a lot more similarities than differences, that’s for sure!

    I think in Australia, they have a retirement plan called the “Super” and it sounds like our TFSA I think.

    • Reply
      Chrissy
      February 13, 2019 at 7:34 pm

      Hey GYM—thanks for the comment! I’ve also heard of Supers, but don’t know much about them. I enjoy learning about FIRE in other countries, so I’ll definitely be reading up on those—just to indulge my insatiable curiosity/shiny object syndrome. 🙂

  • Reply
    Reverse The Crush
    February 20, 2019 at 4:09 pm

    Wow, this is a great idea for a post, Chrissy! Thanks for putting this together! I have always had an idea of the US equivalent accounts but was not sure. Thanks again for adding me to your Canadian FI/RE Blogs list. Just so you know I added you to the RTC blogroll. I love what you’re doing. Keep it up! 🙂

    • Reply
      Chrissy
      February 20, 2019 at 5:57 pm

      Hey RTC, thanks for all the kind words, and for adding me to your blogroll. It means so much to get encouragement from bloggers who are farther along than me. 🙂

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