RRSP (Registered Retirement Savings Plan)

• Primary Purpose: Retirement savings

• Tax Benefits: Contributions are tax-deductible.

• Tax on Growth: Investment growth is tax-sheltered until withdrawal.

• Tax on Withdrawals: Withdrawals are taxed as income.

• Contribution Limits: Limited to 18% of previous year's earned income, up to a maximum amount, plus any unused contribution room.

• Unused Contribution Room: Carried forward indefinitely.

• Ideal Users: Individuals expecting to be in a lower tax bracket in retirement.

• Best Uses: Long-term retirement savings, reducing current income tax.

• Impact on Government Benefits: Withdrawals are considered income and may affect income-tested benefits.

• Withdrawal Rules: Generally designed for retirement, but withdrawals are permitted at any time (subject to tax).

TFSA (Tax-Free Savings Account)

• Primary Purpose: Savings for any goal (retirement, emergencies, etc.).

• Tax Benefits: Contributions are not tax-deductible.

• Tax on Growth: Investment growth is tax-free.

• Tax on Withdrawals: Withdrawals are tax-free.

• Contribution Limits: Set annually by the government (e.g., $6,500 in 2023) plus any unused contribution room.

• Unused Contribution Room: Carried forward indefinitely.

• Ideal Users: Individuals who may be in a higher tax bracket in retirement, or those who want tax-free access to their savings.

• Best Uses: Short-term and long-term savings, tax-free investment growth, emergency fund.

• Impact on Government Benefits: Withdrawals and the funds held within do not affect eligibility for income-tested benefits.

• Withdrawal Rules: Funds can be withdrawn at any time without penalty or tax implications.

Key Differences

RRSP vs. TFSA Comparison