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Comment by cbhl | Hacker News Reader

I really liked Canada's approach to this, the "Tax Free Savings Account".

You get contribution room for every year that you are 18+ and a tax resident. Money goes in post-tax; withdrawals of principle and growth are tax-free. Withdrawals can happen at any time with no penalty; you get the contribution room back in the following year.

Right now Canadians get $6000/year of contribution room; anyone who's been in Canada since they were introduced in '09 has something like $63k of contribution room accumulated. $6000 is a tangible number for a teenager with a part-time or summer job, and the lack of withdrawal penalties means that the account doubles as an emergency fund (which is what you should be doing with your first dollars if you go by r/personalfinance's chart).

Then again, the Canadians also don't have the whole "savings accounts are limited to six withdrawals" nonsense.

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The USA already has something very similar, called a Roth Individual Retirement Account (Roth IRA). The contribution limit is even the same, at $6k USD/year

The main difference is that, before retirement age, Roth IRAs only allow the principal (not the growth) to be withdrawn without penalties. Also, people who earn more than around $150k are not allow to contribute to Roth IRAs (the exact threshold is based on a tax calculation called MAGI)

In my opinion, the Roth IRA would be much more successful if it was for everyone, and not just "the poor".

- Roth IRA is an investment account. Usually holds ETFs. TFSA can come both as a savings account and an investment account. People with lower MAGI are less likely to be able to weather the ups and downs of the market for their emergency fund.

- $150k MAGI is literally "any job at Google/Facebook"; and also roughly the poverty line for family-with-two-kids in SF Bay Area due to the housing prices here. Who actually has funds to put in a Roth IRA through the front door?

- Contribution room mechanism means that you have to know your MAGI before you can put money in it. In Canada, the banks display your contribution room on the online banking portal, because the calculation is the same for everyone.

- Any mechanism for a withdrawal penalty makes it regressive. Rich people rely on accountants or TurboTax to track basis; with the TFSA you can just look at your balance to see if it's safe to withdraw money, making it accessible to young people and immigrants.

- Rich people can contribute to the Roth IRA through a Traditional IRA, and in doing so, contribute more per year than folks contributing through the front door.

In the US, a Roth IRA is somewhat similar, except it differs from what you described: early withdrawals have a penalty, and the contribution "room" is different. With the IRA, you can only contribute up to the $6000 annually. You don't accumulate "room", just principal. If you miss it, you miss it.

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