Check this out:
Since January 2009, Canadian residents have been eligible to open Tax-Free Savings Accounts (TFSAs). They work almost exactly like Roth IRAs: you contribute after-tax dollars, and all withdrawals are tax-free. All Canadians 18 and older can contribute up to $5,000 (Canadian) a year to a TFSA, and you can stuff it with a variety of investments: regular savings accounts, CDs (called GICs in Canada), and mutual funds.
Unlike Roth IRAs, however, you can use a TFSA to save for absolutely anything. You don’t have to submit receipts. You can use the savings for college, medicine, retirement, or a pony. Furthermore, if you don’t contribute your full $5,000 this year, the leftover amount rolls over. I could, if I were Canadian, put $5 in my TFSA this year and $9,995 next year. (You can actually put in even more than this, in a way too complicated to explain but easy to do in practice.)
“They’re astounding,” said Chris Edwards of the Cato Institute, a libertarian think tank. “It’s a profound reform. It essentially eliminates taxation on savings for the entire middle class.”
Five grand a year is a significant amount of savings for most families–but not for the rich.
Edwards, who is originally from Canada, sounds a little homesick. As well he should. In 2002, he co-wrote a paper arguing that Roth IRAs should be converted into what he called Universal Savings Accounts (USAs, get it?). It describes a proposed reform nearly identical to the Canadian TFSA.
President George W. Bush’s administration had a similar idea dubbed Lifetime Savings Accounts; it went into several budgets he submitted to Congress in the mid-2000s. Each time, Congress stripped it out.
I spoke to a source at the House Ways and Means Committee, which would have to sign off on tax-free savings accounts in the US. They said nothing of the kind is currently in discussion.
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