Comments on: Canadian RRSP Vs. U.S. 401(k) Retirement Account Comparison

By: Canadian Investor

Canadian Investor — Fri, 26 Aug 2011 03:29:24 +0000

Very interesting post and comments which do help to understand the comparison a bit better.

Couple of things to note on the RRSP. While there is not a “penalty” on early redemptions for an RRSP there is withholding tax on the amount redeemed. 10 % for $0 – $5000, 20% for $5001 – $15 000, and 30% for >$15 000. In addition, replacing any redeemed portions reduces your carry forward room on the contribution side. So not quite penalty-free.

Perks missed. You are able to continue to contribute to an RRSP as long as you have employment income claimed up to 70 years of age. Once you turn 71 the RRSP must be closed down by the end of the calendar year — moved into an annuity, RRIF (another tax deferred account), or a lump sum removal (really not advised because there are major tax implications). So there is an additional 11.5 years with an RRSP were there are no mandatory withdrawals from the plan.

There is also the ability to borrow against your RRSP for a first time home purchase in Canada and for a return to school (Life Long Learning) at some point later on in life. This money must be repaid to the RRSP but the money is not subject to with holding tax so it is a great incentive.

By: Roar

Roar — Mon, 01 Aug 2011 17:14:20 +0000

I always thought a 401k was closer match to an employer defined contribution pension plan and the IRA as a closer match to the RRSP?
And a ROTH IRA would be similar to a TFSA?

I have a defined contribution PP, 5% me, 6% employer vested to min. age 50 and/or when you retire.
I also have a Group RRSP at work with personal contributions only.
I also have a personal RRSP set up with the banks, again with personal contributions only.

By: TexaCan

TexaCan — Mon, 23 Mar 2009 22:32:12 +0000

Another great post. (I started with the TFSA vs RothIRA article.) Great comments too! I just want to take a different take on why the US 401k is structured as it is. I think it is more to discourage investment than to keep people from withdrawing for “silly reasons”. I would posit that for the last 30 years, the US has become more protecitve of Employers, with lesser regard for Employees. (a la “Reaganomics”) In the US, employee benefits, including retirement savings (401k) and affordable medical insurance are tied to the employer. These are “silver hand-cuffs”, if you will. So long as you are employed and stay with the same employer, things are straight forward. However, when you change employers, or lose your job, you must change (or lose) medical insurance plans and you should “roll-over” your retirement accounts to a new retirment account (Non-Roth IRA, or a new employer’s 401k). Of course, roll-overs may be subject to additional fees. If you opt to keep the 401k account with the original employer, you are not allowed to make further contributions or perform any investment actions such as investment re-distribution. The bottom line is that the 401k is designed to make changing employers less “convenient” and early withdrawls are hit with stiff penalities. The main attraction of the 401k plan is that many employers will supplement contributions to the account by matching a portion of employee contributions or contribute a minimum amount. As pointed out above, this is a great benefit. But, it is not mandatory and contribution plans are not consistent between employers. As well, employee participation is not manditory as was the case with company pensions. In short, the employee (a.k.a. investor!) -oriented Canadian RRSP is a much simpler account. Coupled with employer matching, the RRSP is a superior account. Now that the “Roth-like” TFSA has been created, I am one expat who may yet move back!

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By: My Dollar Plan

My Dollar Plan — Mon, 04 Aug 2008 16:44:47 +0000

I love the way the series turned out. Great job Mike!

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