Individual Retirement Accounts (IRAs)

In the US , the closest thing you will find to an RRSP is an IRA.  Do not mistake these for RRSPs as RRSPs are treated completely different from a tax and investment viewpoint in the US .   Many clients are asked by their US accountant what an RRSP is and the typical response is "its like an IRA."  The accountant then wrongly assumes that they are an IRA and does not prepare your tax return correctly creating tax and compliance issues with the IRS.  See the income tax planning section of this website for the taxation of RRSPs.   

There are several types of IRAs and which one to use depends on your unique situation and what you are trying to achieve (your goals and objectives).  There are traditional plans that may be deductible or non-deductible depending on your adjusted gross income.  There are SEP-IRAs (Simplified Employee Plan) and Rollover IRAs.  One of the most welcomed plans is the Roth IRA that resulted from the 1997 Taxpayer Relief Act and the efforts of Senator Roth.  This plan allows you to put away after-tax dollars and withdraw them tax-free after age 59 ½!  (Note: this is tax-free versus tax-deferred). 

As with anything, the rules surrounding these plans are amazingly complex and must be carefully considered before choosing the one that is right for you.  There are rules on how much you can defer each year (currently $3,000 in 2004 for traditional IRAs under current rules) and penalties if you take them out too soon.  There are more rules on when you must start taking funds out (age 70 ½ compared to age 69 for the RRSP) and different rules that apply in the event of your death.  There are even more rules on when you can make contributions and when the time has passed (typically have to contribute by the time you file your tax return on April 15 th ). There are ways of passing your IRAs on to your heirs and allowing them to continue the tax deferral for the balance of their lives as well! Of course, all of this requires the appropriate planning based on what it is you are trying to achieve.