TFSA vs Roth IRA: How Canada and the US Tax-Free Accounts Compare

The Tax-Free Savings Account (TFSA) and the Roth IRA are the closest equivalents in their respective tax systems. Both take after-tax dollars, grow tax-free, and pay out tax-free. The annual contribution limits are similar: $7,000 CAD for the TFSA and $7,500 USD for the Roth IRA (2026). The resemblance is strong enough that cross-border planners often describe one by referencing the other. But the structural similarities mask real differences in eligibility, withdrawal rules, and what happens when you cross the border. A TFSA held by a US citizen or green card holder is likely a foreign trust with Form 3520 obligations. A Roth IRA held by a Canadian resident needs a treaty election to keep its tax-free status. Neither account travels cleanly.

What’s the US equivalent of a TFSA?

The Roth IRA under IRC 408A is the closest US equivalent. Both accounts take after-tax dollars, grow tax-free, and pay out tax-free. The TFSA was introduced in 2009 under ITA 146.2; the Roth IRA has existed since 1998. Neither gives a deduction on contribution. The comparison is imperfect because the TFSA has no age restrictions on withdrawals while the Roth IRA layers on a 5-year holding rule and a 59.5 age threshold, and Canada has no income-based phase-out. Despite those differences, the treaty treats them as counterparts.

• The TFSA can legally be a trust, annuity, or deposit arrangement; the Roth IRA is an individual retirement arrangement defined by the Internal Revenue Code
• The functional equivalence is close enough that Article XVIII of the Canada-US tax treaty covers both in its retirement-account provisions

How do TFSA and Roth IRA contribution rules compare?

The annual limits are close, $7,000 CAD and $7,500 USD for 2026, a coincidence rather than coordinated policy. Beyond those numbers, the rules diverge. The TFSA has no income test, unused room accumulates indefinitely ($109,000 cumulative by 2026 for someone eligible since 2009), and withdrawals restore room the following January. The Roth IRA has income phase-outs ($153K-$168K single, $242K-$252K MFJ for 2026), no carry-forward of unused room, and no restoration on withdrawal.

• TFSA: $7,000 CAD annual limit, no income ceiling, no minimum age beyond 18, $1,000 catch-up not applicable
• Roth IRA: $7,500 USD ($8,600 if 50+), income phase-outs apply, “backdoor Roth” conversion is a workaround not a contribution

Feature	TFSA (Canada)	Roth IRA (US)
Annual limit (2026)	$7,000 CAD	$7,500 USD ($8,600 if 50+)
Income limit	None	Single: $153K-$168K phase-out; MFJ: $242K-$252K
Minimum age to contribute	18	Any age with earned income
Carry-forward of unused room	Yes, indefinitely	No
Room restored on withdrawal	Yes, following calendar year	No
Catch-up contributions	None	$1,100 (age 50+)
Cumulative room (since inception)	$109,000 (2026, if eligible since 2009)	N/A (no carry-forward)

Are withdrawals tax-free in both accounts?

Yes, but the withdrawal rules are simpler on the Canadian side. A TFSA withdrawal is tax-free regardless of age, holding period, or purpose. The Roth IRA is tax-free only on “qualified distributions,” which require a five-year holding period and a triggering event (age 59.5, disability, death, or a first-time home purchase up to $10,000). Your own Roth contributions can come out any time tax-free, but earnings withdrawn early face income tax and a 10% penalty under IRC 72(t). In practice, the TFSA is a general-purpose savings vehicle; the Roth IRA is designed for retirement.

• TFSA: no penalty, no holding period, no “qualified” requirement; withdrawn amounts restore contribution room the following January
• Roth IRA: contributions come out first under the ordering rules in IRC 408A(d)(4); earnings are subject to the 5-year and age 59.5 tests

What happens to my TFSA if I’m a US person?

The TFSA is a compliance problem for US citizens, green card holders, and anyone else who files a US return. Many TFSAs are set up as a trust under Canadian law, making them a foreign trust under IRC 7701, which triggers annual Forms 3520 and 3520-A with penalties starting at the greater of $10,000 or 5% of the trust’s value. The US does not recognize the TFSA’s tax-exempt status, so all income inside it is taxable on the US return annually. The compliance cost often exceeds the benefit.

• The practical advice for US persons in Canada is to avoid the TFSA entirely and use the RRSP (which the treaty covers) for tax-deferred savings
• If you already have one, evaluate whether to keep it (and pay the compliance cost) or close it
• The 2024 proposed US regulations offer some relief for accounts under $50,000 in aggregate, but the rules are not yet final

What happens to my Roth IRA if I move to Canada?

The Roth IRA stays open in the US, but keeping it tax-free in Canada requires the Article XVIII(7) treaty election. Without the election, Canada taxes the accruing income every year even though nothing is withdrawn. Qualified distributions stay tax-free under Article XVIII(1) because a Roth distribution excluded from US gross income under IRC 408A(d)(1) meets the treaty test. The one thing you must not do is contribute while you are a Canadian resident, because Article XVIII(3)(b) permanently strips treaty pension status from that portion.

• The election is a one-time filing (a letter attached to your Canadian return) that defers Canadian tax on undistributed Roth income
• From the US side, obligations do not change when you move to Canada, though some brokerages restrict or close accounts when the holder’s address changes to a foreign country
• The Roth IRA in Canada guide covers the election mechanics, the contribution prohibition, and what CRA counts as a contribution

Can I have both a TFSA and a Roth IRA?

Legally, yes. A Canadian resident who is also a US person can hold both. Whether you should is a different question, and the answer is almost always no. Each account creates compliance obligations in the other country: the TFSA generates US reporting (Form 3520/3520-A) and US tax on growth; the Roth IRA generates Canadian reporting (the treaty election) and requires no contributions while in Canada. The RRSP is the account that works in both directions, with the treaty covering deductions, deferrals, and distributions.

• The TFSA adds compliance cost without a treaty benefit for US persons
• A pre-move Roth IRA is worth keeping (election filed, no new contributions), but opening a new Roth from Canada is impractical because you need US-source earned income to contribute

What should I do next?

If you are crossing the border and hold either account, the first step is to understand what the other country requires. A US person in Canada with a TFSA should evaluate whether the compliance cost justifies keeping the account open. A Canadian in the US (or a US citizen in Canada) with a Roth IRA should file the treaty election on the first Canadian return and stop contributing. The guides below cover each scenario in detail.

• Is a TFSA a foreign trust? Form 3520 explained, the US reporting obligations
• Roth IRA in Canada: does it stay tax-free?, the treaty election and contribution rules
• What TFSA reporting actually costs on a US tax return, the compliance math
• Can you hold US stocks in a TFSA?, the withholding tax on US dividends
• Should I do a Roth conversion before moving to Canada?, pre-move planning
• I’m American and moving to Canada, the full tax roadmap
• What happens to your 401(k) when you move to Canada?, the RRSP equivalent and transfer options

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.