An RRSP is a tax-deferral tool that helps you save for retirement. A TFSA is a savings tool that you can also use for retirement, as well as the other projects you have going on. In other words, we have two plans with two different sets of goals. Choose the one that best suits your needs and goals or combine them to maximize their benefits.
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An RRSP is a tax-deferral tool that helps you save for retirement. A TFSA is a savings tool that you can also use for retirement, as well as the other projects you have going on. In other words, we have two plans with two different sets of goals. Choose the one that best suits your needs and goals or combine them to maximize their benefits.
Summary
RRSP
TFSA
Objective
Accumulate tax-sheltered savings while decreasing your taxable income when you contribute.
Accumulate tax-sheltered savings.
You can use it to
Save for retirement
Buy or build your first home
Pay for your education
Renovate your home
Buy a new car
Start a business
Travel
Save for retirement
Advantages
Save for retirement and take advantage of tax deductions when you’re in a higher tax bracket.
When you retire, be in a lower tax bracket when you withdraw your money.
Continue saving for retirement after you’ve maxed out your RRSP, or another retirement plan.
Save for major purchases.
Set money aside for emergencies.
Maximum age
71 years. After you turn 71, your RRSP must be converted to an income payout product (RRIF or annuity).
No maximum age.
Contributions
RRSP
TFSA
Contributions
They’re tax deductible, but you do pay taxes on your investment earnings and withdrawals.
They’re based on your employment income. But, you can only contribute the lesser of 18% of your previous year’s earned income and the annual maximum set by the Canada Revenue Agency
Not tax deductible, but you don’t pay taxes on your investment earnings or withdrawals.
Your employment income is not a factor, but there are annual contribution limits that are set by the Canada Revenue Agency
Contribution room
Unused contribution room can be carried forward until the year you turn 71.
Excess contributions are subject to a penalty tax of 1% per month. This penalty tax only applies if you exceed the $2,000 lifetime over-contribution amount.
Any unused contribution room can be carried forward indefinitely.
Excess contributions are subject to a penalty tax of 1% per month.
Investment income
They’re tax exempt as long as they remain in the plan.
They're tax exempt
Withdrawals
RRSP
TFSA
Can I take my money whenever I want?
It depends on the rules of your RRSP.
Withdrawals for the Home Buyer’s Plan (HBP) and the Lifelong Learning Plan (LPP) may also be prohibited. Some plans do allow withdrawals, but you’ll have to pay income tax and withdrawal fees.
Yes, at any time.
Can I recover contribution room following a withdrawal?
No. Keep in mind that no matter how much you withdraw, you can only contribute the maximum annual amount set by the Canada Revenue Agency.
Yes. Your withdrawals may be redeposited in the same calendar year if you have enough contribution room left, and if you don’t, then you may redeposit them in the following calendar years.
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