TFSAs and RRSPs are both financial products that offer tax advantages to help you reach your savings goals. They are similar in some ways, but there are some key differences as well. There is some debate about these two saving vehicles, and some confusion about which is the better choice. Some say a Tax Free Savings Account, TFSA, is the way to go. Others point to a Registered Retirement Savings Plan, RRSP, as the better choice.


The bottom line is that they are both investment vehicles that reduce taxes on your investment income, but deciding on which is the better choice for you depends on your goals and circumstances.



What’s the Difference?


The main difference between the two is the way your income is taxed when you contribute and withdraw from each account. A TFSA is a tax-free account, meaning your contributions are made with after-tax income and you won’t be subject to any additional taxes when you make a withdrawal. On the other hand, a RRSP is a tax-deferred account, meaning your contributions are made with pre-tax income and you’ll be taxed when you withdraw the money. In the long run, you’ll end up with about the same amount of money, so there’s no need to stress too much about which account is best for you.


In reality, both of these accounts would be more accurately viewed as investment accounts, because that is the best way to make use of them. Another important difference between a TFSA and a RRSP is the contribution and withdrawal restrictions associated with each account. TFSA withdrawals are tax-free, but you’ll pay tax on RRSP withdrawals.


Here’s some facts and a summary of the key differences:


  • RRSPs are intended for retirement savings. You can use a TFSA to save for anything you want.


  • You need earned income to contribute to an RRSP, but not for a TFSA.


  • RRSP contributions are made with pre-tax dollars.
  • TFSA contributions are made with after-tax dollars.


  • You can only contribute to a TFSA after you are 18 years old, but there’s no age cutoff.


  • You can only contribute to a RRSP until the age of 71, after which you have to withdraw it all using the Registered Retirement Income Fund, or RRIF.


  • You can make tax-free withdrawals from your TFSA anytime, for any reason.


  • You can only withdraw money from a RRSP for two reasons:


  • Lifelong Learning Plan. $10,000 per year to a maximum $20,000 for school, and you have to repay it over 10 years.
  • Home Buyers Plan. Up to $25,000 for a down-payment on your first home, and you have to repay it over 15 years.



Both of these accounts are excellent products to help you grow your savings. Understanding how they differ, and having clarity on your goals, will help you decide which is best for you. Or, you can choose to use both!


Are you currently using either of these products? If so, why did you choose one over the other?

If you need more information give me a shout, email or call 204-392-6406.