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TFSAs vs. RRSPs: What’s The Difference?

TFSAs vs RRSPs - What's The Difference

TFSAs (Tax-Free Savings Accounts) vs. RRSPs (Registered Retirement Savings Plans) are two popular options for saving money in Canada. While they both offer benefits for saving and investing, they have some key differences that you should be aware of.


One main difference is the tax treatment of contributions and withdrawals. Contributions to RRSPs are tax-deductible, which means that you can claim a deduction on your tax return for the amount you contribute. This can result in a lower tax bill for the year in which you make the contribution. Withdrawals from RRSPs, on the other hand, are taxed as income in the year that you make the withdrawal.

TFSAs, on the other hand, do not offer a tax deduction for contributions. However, all withdrawals from TFSAs are tax-free, regardless of your income level.

Contribution Limit

Another difference is the contribution limit. The contribution limit for RRSPs is based on your earned income and your age and is subject to change each year. The amount that you can contribute to an RRSP is calculated using a formula provided by the Canadian government. It is typically around 18% of your earned income for the year. You can carry forward any unused contribution room to future years.

TFSAs have a fixed annual contribution limit, which is currently set at $6000 per year. You can carry forward any unused contribution room to future years, and you can also catch up on missed contributions in future years.


Another important difference is the purpose of the accounts. RRSPs are specifically designed for retirement savings, and there are penalties for withdrawing funds before retirement age. TFSAs, on the other hand, can be used for any purpose and can be accessed at any time without penalty.


RRSPs and TFSAs also have different eligibility rules. To open an RRSP, you must have earned income, such as salary or self-employment income. TFSAs, on the other hand, are available to anyone over the age of 18 who has a valid Social Insurance Number.

RRSPs and TFSAs also have different implications for government benefits and credits. Contributions to RRSPs can affect the amount of certain government benefits and credits that you are eligible for, such as the Guaranteed Income Supplement and the Old Age Security pension. TFSAs do not have any impact on government benefits and credits.


In summary, RRSPs offer a tax break on contributions and are best suited for retirement savings, while TFSAs offer tax-free withdrawals and can be used for any purpose. Both options can be useful tools for saving money and achieving your financial goals. It’s important to understand the differences between them in order to choose the right one for your situation.

It’s worth noting that you don’t have to choose between TFSAs vs. RRSPs – you can have both! In fact, many people find it helpful to use both types of accounts in order to diversify their saving and investing strategy. It’s always a good idea to consult with a financial advisor or tax professional to determine the best saving and investing strategy for your individual situation.

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