TFSA vs Roth IRA – What Are The Differences?

The Canadian tax-free savings account program started in 2009, offering people a vehicle to set money aside tax-free throughout their lifetime. In the US, Roth individual retirement accounts (IRAs) were created by the Taxpayer Relief Act, taking effect in 1998. 

Both offer tax advantages, both help your savings grow faster, and both are favorites among savvy savers. But the truth? They’re not interchangeable. Whether you’re a U.S. citizen living in Canada or a Canadian working south of the border, knowing how these accounts differ can save you headaches—and money.

What Is a TFSA?

Think of the Tax-Free Savings Account (TFSA) as Canada’s financial gift to its residents. Introduced in 2009, this account allows Canadians to grow their savings tax-free—unlike retirement accounts like RRSPs (Registered Retirement Savings Plans), TFSAs don’t offer an upfront tax deduction. But here’s the trade-off: your investment growth and withdrawals are completely tax-free. Yes, completely.

Why Do Canadians Love TFSAs?

• Unmatched Flexibility: Need cash? No problem. You can withdraw funds anytime, penalty-free, and the amount you take out gets added back to your unused contribution room the following year.
• No Strings Attached: Unlike many retirement accounts, TFSAs don’t have age restrictions or required withdrawals. You’re in the driver’s seat.
• Everyone Qualifies: Whether you earn $25,000 or $250,000, your ability to contribute doesn’t change. The annual limit for 2025 is $7,000, but any unused room carries forward.

If you’re a Canadian resident, it’s a no-brainer to take advantage of this account. But here’s a word of caution for U.S. citizens living in Canada: TFSAs aren’t recognized as tax-free by the Internal Revenue Service (IRS). Translation? Your “tax-free” savings might still trigger U.S. reporting headaches and taxes.

What Is a Roth IRA?

Now let’s cross the border to the U.S., where the Roth IRA is a retirement savings superstar. Named after Senator William Roth, this account allows Americans to save using after-tax dollars, grow those savings tax-free, and enjoy tax-free withdrawals in retirement.

But, as with anything tax-related, there are strings attached.

Why Is the Roth IRA So Popular?

• Tax-Free Withdrawals for Retirement: Picture this—you’ve worked hard, saved diligently, and hit retirement. With a Roth IRA, you won’t pay a dime in taxes when withdrawing your money (as long as you’re over 59½ and meet the five-year holding rule).
• No Forced Withdrawals: Unlike traditional IRAs or 401(k)s, Roth IRAs don’t have required minimum distributions (RMDs). If you don’t need the money right away, you can let it grow as long as you like.
• Wide Investment Choices: Mutual funds, ETFs, individual stocks, even bonds—you’re not limited to cookie-cutter investments.

Sounds great, right? But there’s a catch: income limits. If you earn too much (over $146,000 for single filers or $230,000 for joint filers in 2025), your ability to contribute may phase out or disappear entirely.

TFSA vs Roth IRA – What Are the Key Differences?

Here’s where things get interesting. While both accounts offer tax-free growth and withdrawals, they cater to very different financial and legal landscapes. Let’s break it down:

1. Residency Requirements: TFSAs are for Canadian residents, while Roth IRAs are tied to U.S. residency and earned income. If you move between the two countries, the rules don’t always follow you.
2. Contribution Flexibility: TFSA contributions can be re-added after withdrawal, making them more forgiving. With Roth IRAs, withdrawals are permanent—you can’t “get back” that contribution room.
3. Tax Treatment Across Borders: A Roth IRA in Canada might lose its tax-free status, while a TFSA can create reporting obligations with the IRS and potentially result in taxes owed. That’s why cross-border tax planning is crucial.

Need Help With Cross-Border Finances?

We know—keeping track of your retirement accounts is hard enough without adding cross-border tax rules into the mix. But this is where we shine. At i2 Wealth, we help individuals and families navigate the complexities of cross-border financial planning.

Here’s how we can help:

• Simplify tax rules for accounts like TFSAs and Roth IRAs.
• Ensure you’re not overpaying taxes—or triggering penalties—on either side of the border.
• Optimize your retirement strategy to take advantage of every available tax benefit.

We don’t manage investments, so you’ll never have to worry about conflicts of interest. Our goal? To give you clear, actionable advice that fits your unique financial situation.

Have questions about how a cross-border financial planning firm can make your life easier? Contact us today to schedule a consultation.

Let us help you turn cross-border financial complexity into clarity. After all, your savings—and your peace of mind—are worth it.