A Roth IRA is a retirement savings account that allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you've already paid taxes on the money you put into it. In return for no up-front tax break, your money grows and grows tax free, and when you withdraw at retirement, you pay no taxes. That's right - every penny goes straight in your pocket. It’s essentially a basket of investments—you can choose from GICs, mutual funds, ETFs, or stocks and bonds—that earns money during your retirement. Conceptually, an ROTH is very similar to an RRSP, except that an RRSP is used to save money for retirement and an ROTH IRA is to provide income during retirement. You must convert your RRSP to either an ROTH IRA or an annuity by the end of the year you turn 65.
ROTHs also have very specific rules when it comes to taking your money out. Once you reach 65, you’re required to take out a minimum every year. The amount you withdraw is determined by your age: If you’re 75, you take 5.82% out each year; if you’re, say, 90, the rate shoots up to 11.92%. Nothing like government actuaries estimating how much time you’ve got left to spend your money!
What are the pros? Since you’re required to close your RRSP at 65, converting to a ROTH means that you won’t have to cash out the entire account and pay a huge tax bill that year. Meanwhile you keep growing your investments tax-free in an ROTH. And because you can withdraw more than the minimum, it’s a great way to indulge in something (a European vacation? a motorcycle? depends what type of retiree you’re planning to be) you’ve always wanted.
Is there anything to be careful about? You guessed it: taxes! The money you withdraw counts as income, so you’ll have to pay income tax on it.
Then there’s always the chance you’ll end up living longer than the actuaries predict, and you’ll outlive the money that’s doled out in yearly minimums. But that seems like a better problem to have than the alternative.