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Types of Investment Accounts

For Investors Based in Canada:

What is an RRSP?

A Registered Retirement Savings Plan, or RRSP, is designed to help Canadians save for retirement. In comparison to a regular investment account, the main advantage of an RRSP account is that the contributions made to an RRSP (which can be made up to a certain limit) are tax-free and that the money within an RRSP can compound without you having to pay taxes on the gains.

 

What is an RRIF?

A Registered Retirement Income Fund (RRIF) is a tax-deferred retirement plan under Canadian tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan. Like an RRSP, an RRIF account is registered with the Canada Revenue Agency.

 

What is a TFSA?

A Tax-Free Savings Account (TFSA) is a registered account that allows Canadians to earn money, tax-free. Through a TFSA, you can put your savings into eligible investments and not pay tax on the investment income you earn. TFSAs are designed to help you save money for a wide range of goals, including retirement.

The amount you can contribute is not based on your income, and contributions are not tax-deductible. You can withdraw your money any time you want it without paying tax, and you won’t lose contribution room when you make a withdrawal – you can recontribute that amount to your TFSA the following year or any year after that.

 

What is an LIRA?

The Locked-In Retirement Account (LIRA), and the similar Locked-In Retirement Savings Plan (LRSP), are Canadian investment accounts designed specifically to hold locked-in pension funds for former plan members, former spouses or common-law partners, or surviving spouses or partners.

 

For Investors Based in the USA:

 

What is a 401(k)?

In the United States, a 401(k) plan is a tax-qualified, defined-contribution pension account. Retirement savings contributions are provided and sometimes proportionately matched by an employer, deducted from the employee’s paycheck before taxation (and therefore tax-deferred until withdrawn after retirement or as otherwise permitted by applicable law), and limited to a maximum pre-tax annual contribution of $18,500 (as of 2018).

What is an IRA?

An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. There are three main types of IRAs, each with different advantages:

    • Traditional IRA:You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees also find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
    • Roth IRA: You make contributions with money you’ve already paid taxes on, and your money has the potential to grow tax-free with tax-free withdrawals in retirement, provided that certain conditions are met.
    • Rollover IRA: You make contributions with money “rolled over” from a qualified retirement plan. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.