What’s the Difference Between a TFSA and RRSP?

We know that both TFSAs and RRSPs allow us to save money, but in what situations would one be more beneficial than the other?

Tax Free Savings Accounts (TFSAs) let you grow your money and invest for both short and long-term goals with no effect on taxable income. While Registered Retirement Savings Plan (RRSPs) are a personal savings plan that allows for you to save for retirement with the bonus of tax benefits.

Let’s look at the feature differences between the two accounts:

TFSARRSP
–   No effect on taxable income–   Tax receipt for contributions
lowers taxable income
–   Tax deferred growth–   Tax deferred growth
–   No tax on withdrawals–   Withdrawals are taxed as
income
– Start building your nest egg at
age 18
–   No age limit to start building
your nest egg
–   Don’t need earned income to
contribute
–   Need earned income to
contribute
–   Account may remain open
indefinitely with no maximum age
for contributions.
–   At age 71 RRSP contributions end
and must be withdrawn or
transferred to a
Registered Retirement Income
Fund.

TFSAs are flexible, and you can deposit or withdraw for purposes such as emergency funds, down payments on a home, retirement, etc. All the contributions are not tax deductible and any unused money can be carried forward.

RRSPs are meant specifically to save for retirement but can be used for first time home buyers and funding post-secondary education provided they are paid back within a given period. Contributions are tax deductible and any unused money can be carried forward.

Curious which one would help you reach your financial goals? Contact one of our Member Advisors to start your investment journey today.

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Written by

lsmith@copperfin.ca

Lori has been helping credit union members make smart money decisions since 1979 and has worked in a number of positions including retail lending and investing. As a Certified Financial Planner professional, Lori is committed to helping clients implement strategies that help achieve their financial goals. Lori can be reached directly at 807-467-4315 or by email at lsmith@copperfin.ca