RRSP or TFSA?

Blog-Borrowing-to-save

If you're like many Canadians, you're probably wondering what the Tax-Free Savings Account (TFSA) is all about. This product, introduced by the Government of Canada, was designed to help Canadians increase their savings without being taxed on the interest earned in that account.

So, what's the difference between a TFSA and an RRSP?

Both are savings vehicles. RRSPs are tax deductible at the time of contribution, whereas a TFSA is not. However, when you withdraw money from an RRSP it is taxable, where a TFSA is not. TFSAs can be used for other purposes besides retirement, so they offer additional flexibility, being able to access these savings at any time.

Deciding whether a TFSA or RRSP (or a combination of both) is right for you will depend largely on your need to access your funds, or whether you need the immediate tax deduction. Perhaps you expect to be in a higher tax bracket in the future and will need the tax-free benefits that a TFSA presents. Or maybe you've topped out on your RRSPs and would like another savings vehicle that doesn't get taxed when withdrawn. Cambrian can help you decide what the right solution is.

Comparison Items TFSA RRSP
Minimum Age 18 years No minimum
Age limit for contributions No limit Year of 71st birthday
Contribution limit
 
2009-2012: $5,000

2013-2014: $5,500

2015: $10,000

2016: $5,500
 
2008: Up to $20,000
Limit as a % of income earned No limit 18%
Carrying forward of unused contribution room Annual Annual
Replacement of withdrawal amounts Yes No
Tax-deductibility of contributions No Yes
Tax on Income No No
Tax on withdrawals No Yes
Impact on government benefits (OAS, GIS) No Yes