RRSP vs TFSA

February 07, 2019

RRSP vs TFSA

Adulting includes making decisions about your long-term financial future and planning for things like retirement (no matter how far off they may seem).  To make it all even more complex, the government and financial institutions have done a great job of using acronyms that you have to learn and understand.  

To determine which of these are right for you to achieve your financial goals, you should always consult with a financial planner.  The bullet points here attempt to summarize some key aspects of RRSP’s and TFSA’s to familiarize yourself a little bit more about the differences between them.

RRSP (Registered Retirement Savings Plan)

  • Contributions create tax deductions on your return (ie. can reduce your amount owing or increase a refund)
  • Income earned on the investments inside an RRSP is not taxable as it is earned (ie. income accrues tax-free)
  • Withdrawls from the RRSP (whether early, or at retirement) are taxable income to you when they are made
  • Your income in the previous year determines the maximum amount you can contribute for any one year.  Unused amounts carry forward indefinitely, and so remain as available contribution room for you at any point in the future when you may want to "catch up". Excess contributions may be subject to tax.

TFSA (Tax Free Savings Account)

  • Contributions have no impact on your tax return - they are not reported on the return at all, and so do not change your balance
  • Income earned on the investments inside a TFSA is not taxable each year as it is earned (ie. income accrues tax-free)
  • Withdrawls from the TFSa are not taxable income to you when you make them
  • There is a set limit that individuals can contribute each year, which is the same for all people regardless of income.  Unused amounts carry forward and remain as available contribution room for you in the future. Excess contributions may be subject to tax.





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