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 even similar: $7,000 CAD for the TFSA and $7,000 USD for the Roth IRA (2025). 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 is the US equivalent of a TFSA?

The Roth IRA under IRC 408A is the closest US equivalent of a TFSA. Both accounts share the same core mechanic: you contribute money you have already paid tax on, the investments grow without being taxed each year, and qualified withdrawals come out tax-free. The TFSA was introduced in Canada in 2009 under ITA 146.2; the Roth IRA has existed in the US since 1998. Neither account gives you a tax deduction when you contribute (unlike the RRSP or the traditional IRA/401(k), which are the tax-deferred equivalents).

The comparison is imperfect because the accounts sit in different legal frameworks. The TFSA is a registered account that can legally be a trust, an annuity, or a deposit arrangement. The Roth IRA is an individual retirement arrangement defined by the Internal Revenue Code. The TFSA has no age restrictions on withdrawals; the Roth IRA layers on a 5-year holding rule and a 59½ age threshold. And Canada has no equivalent of the income-based phase-out that limits Roth IRA eligibility. Despite these differences, the functional equivalence is close enough that the Canada-US tax treaty treats them as counterparts in its retirement-account provisions.

How do TFSA and Roth IRA contribution rules compare?

The annual contribution limit is $7,000 in both countries for 2025, a coincidence rather than a coordinated policy. Beyond that headline number, the rules diverge in ways that matter.

The TFSA limit is set by the federal government each year (indexed to inflation, rounded to the nearest $500) and applies equally to every Canadian resident aged 18 or older. There is no income test. A person earning $30,000 and a person earning $300,000 get the same room. Unused room accumulates indefinitely: someone who has been eligible since 2009 and never contributed has $102,000 of cumulative room in 2025. Withdrawals restore room the following calendar year, so if you take $20,000 out in 2025, that $20,000 is added back to your room on January 1, 2026, on top of the new annual limit.

The Roth IRA limit for 2025 is $7,000 USD for those under 50, plus a $1,000 catch-up contribution for those 50 and older (total $8,000). Unlike the TFSA, the Roth IRA has income phase-outs: for single filers, the ability to contribute phases out between $150,000 and $165,000 of modified adjusted gross income; for married filing jointly, between $236,000 and $246,000. Earn above the ceiling and direct Roth IRA contributions are prohibited (the “backdoor Roth” conversion is a workaround, not a contribution). Unused Roth IRA room does not carry forward, and withdrawals do not restore contribution room.

Feature	TFSA (Canada)	Roth IRA (US)
Annual limit (2025)	$7,000 CAD	$7,000 USD ($8,000 if 50+)
Income limit	None	Single: $150K-$165K phase-out; MFJ: $236K-$246K
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	$1,000 (age 50+)
Cumulative room (since inception)	$102,000 (2025, 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 your age, how long the money has been in the account, or what the withdrawal is for. There is no penalty for taking money out early, no holding period, and no requirement that the withdrawal be “qualified.” You can open a TFSA at 18, contribute $7,000, withdraw it all the next day, and owe nothing. The withdrawn amount restores your contribution room the following January.

The Roth IRA is tax-free on qualified distributions, which require both a five-year holding period (starting from January 1 of the tax year you first contributed to any Roth IRA) and one of several triggering events: reaching age 59½, disability, death, or a first-time home purchase (up to $10,000). Your own contributions can be withdrawn at any time without tax or penalty, in any order (contributions come out first under the Roth ordering rules in IRC 408A(d)(4)). Earnings withdrawn before a qualified distribution are subject to income tax and a 10% penalty under IRC 72(t), with limited exceptions.

In practice, the Roth IRA is designed for retirement: you contribute, let it grow for decades, and withdraw after 59½. The TFSA is designed as a general-purpose savings vehicle that happens to be tax-free: emergency fund, down payment, retirement, or anything else. This flexibility difference matters for cross-border planning because it affects how and when the money is accessible.

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 tax return. The IRS has never ruled on TFSAs specifically, but many TFSAs are set up as an arrangement in trust under Canadian law, and a trust created outside the US that is not controlled by a US person is a foreign trust under IRC 7701. That classification triggers annual reporting on Form 3520 and Form 3520-A, with penalties starting at the greater of $10,000 or 5% of the trust’s gross value for each late or missing form.

On top of the reporting, the income inside the TFSA is not tax-free on the US return. The US does not recognize the TFSA’s tax-exempt status. The Canada-US treaty has no provision that defers or exempts TFSA income the way Article XVIII(7) works for RRSPs and Roth IRAs. Investment income, dividends, interest, and capital gains inside the TFSA are all reportable and taxable on the US return in the year they accrue, even if nothing is withdrawn. The compliance cost alone often exceeds the tax benefit of the account.

The practical advice for US persons in Canada is to avoid the TFSA entirely. Use the RRSP (which the treaty does cover) for tax-deferred savings and a non-registered account for everything else. If you already have a TFSA, the question becomes whether to keep it and pay the compliance cost or close it and simplify. 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, and keeping it tax-free in Canada requires the Article XVIII(7) treaty election. Without the election, Canada taxes the income accruing inside the Roth every year, even though you have not withdrawn anything. The election is a one-time filing (a letter attached to your Canadian return) that defers Canadian tax on the undistributed income inside the account, the same mechanism that covers RRSPs and 401(k)s held by US residents.

The election handles the accruals. What keeps a distribution tax-free in Canada is a separate provision: Article XVIII(1), which exempts a pension payment from Canadian tax to the extent the payment would not be subject to income tax in the US. A qualified Roth distribution is excluded from US gross income under IRC 408A(d)(1), so it meets this test.

The one thing you must not do is contribute to the Roth while you are a Canadian resident. Article XVIII(3)(b) strips the treaty pension status from the portion of a Roth attributable to contributions made while you are a resident of Canada. The split is permanent for that portion: the election no longer covers it, and the distribution rules change. The Roth IRA in Canada guide covers the mechanics of the election, the contribution prohibition, and what CRA counts as a contribution.

From the US side, your Roth IRA obligations do not change when you move to Canada. A US citizen continues to file US returns and the Roth is reported as usual. A non-citizen who becomes a Canadian resident and gives up US tax residency may still hold the Roth, but the custodian may have compliance concerns about servicing an account for a non-US resident, and some brokerages restrict or close accounts when the holder’s address changes to a foreign country.

Can I have both a TFSA and a Roth IRA?

Legally, yes. A Canadian resident who is also a US person (a US citizen in Canada, for example) can hold both a TFSA and a Roth IRA. Whether you should hold both is a different question, and the answer is almost always no.

The problem is that each account creates compliance obligations in the other country. The TFSA generates US reporting (Form 3520/3520-A) and US tax on the income (the TFSA’s Canadian tax-free status is invisible to the IRS). The Roth IRA generates Canadian reporting (the treaty election) and requires that you never contribute to it while in Canada. Holding both means paying cross-border compliance costs on two accounts, each of which is designed to produce tax-free returns that the other country does not fully recognize.

For a US citizen living in Canada, the RRSP is the retirement account that works in both directions. The RRSP deduction reduces Canadian income, the Article XVIII(7) election defers US tax, and the treaty’s withholding provisions cover distributions. The TFSA adds compliance cost without a treaty benefit. The Roth IRA, if you already have one from before the move, is worth keeping (with the election filed and no new contributions), but opening a new Roth from Canada is impractical for most people 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.