America's retirement system runs through the workplace 401(k) and the personal IRA — with 'traditional' and 'Roth' flavours of each. If you earn or plan in the US, here's the map.
401(k): the workplace workhorse
A 401(k) is a retirement account run through your employer: contributions come straight off your paycheque before tax, grow untaxed, and are taxed on withdrawal — the same 'deduct now, pay later' logic as a Canadian RRSP. The 2025 employee limit is $23,500, plus a $7,500 catch-up from age 50.
Its killer feature is the match: many employers add, say, 50 cents per dollar you contribute up to some percentage of salary. That is an instant, guaranteed 50% return — the first dollars any American saves should go here. Vesting schedules may make you wait a few years to fully own the match, and early withdrawals before 59½ generally cost a 10% penalty plus tax.
IRA and Roth IRA: the personal accounts
An IRA (Individual Retirement Account) is opened by you, at any broker, with a 2025 limit of $7,000 (plus $1,000 catch-up at 50). The traditional version is deduct-now-taxed-later. The Roth version flips it: contribute after-tax money, and everything — growth and withdrawals — is tax-free in retirement, making a Roth IRA the rough American cousin of the Canadian TFSA. Roth contributions (not growth) can even be withdrawn any time without penalty.
Roth IRAs have income limits at the top end, and the choice between traditional and Roth is the same bet as RRSP-versus-TFSA: pay tax at today's rate or tomorrow's. Early-career and lower-bracket savers usually favour Roth; peak earners usually favour traditional.
The rough translation table
For readers who live in both worlds: 401(k) ≈ group RRSP; traditional IRA ≈ RRSP; Roth IRA ≈ TFSA (with income limits and penalties the TFSA doesn't have); Social Security ≈ CPP. The philosophies match; the details — limits, penalties, income caps — do not, so never assume a rule crosses the border. Cross-border tax treatment of these accounts is genuinely tricky and worth professional advice.
The takeaways
- Always capture the full 401(k) match first — it's an instant guaranteed return.
- Roth = pay tax now, never again (like a TFSA); traditional = deduct now, pay later (like an RRSP).
- 2025 limits: $23,500 (401(k)) and $7,000 (IRA), with catch-ups from age 50.
- The account philosophies translate across the border; the rules do not.
Words used here — look them up
Educational content, not financial advice. Figures like contribution limits and benefit amounts change annually — verify against CRA, IRS, or your provider before acting. ← All fundamentals