What's the difference between an RRSP and a TFSA?
Registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) allow you to grow your money tax-free throughout the year. RRSPs are designed mainly to help you save for retirement. TFSAs are ideal for saving for any type of project or building an emergency fund.
Choose the one that best suits your needs and goals or combine them to maximize their benefits.
How RRSPs work
Who can contribute?
Anyone who earns income in Canada.
You can contribute until December 31 of the year you turn 71.
Contribution deadline
For the 2023 tax year: February 29, 2024
Contribution room
18% of the income you earned the previous year, up to a maximum of $30,780 for the 2023 tax year and $31,506 for 2024.
Plus unused contribution room accumulated since 1991.
Tax implications
Contributions are deductible from taxable income.
Withdrawals are taxable.
Excess contributions
You can go over your annual contribution limit by $2,000.
Anything beyond this is subject to a 1% per month penalty.
How TFSAs work
Who can contribute?
Anyone who is 18 or older and has a valid social insurance number.
Contribution deadline
December 31 of the current year
Contribution room
Maximum annual contribution for 2024: $7,000
Plus unused contribution room accumulated since 2009 and withdrawals made the previous year.
Tax implications
Contributions are not deductible from taxable income.
Withdrawals are tax-free.
Excess contributions
A 1% per month penalty applies to every dollar over the limit.
RRSP or TFSA: Which one should I prioritize?
The RRSP and TFSA complement one another. The plan you should choose depends on your situation.
Retirement or other goals
- If you want to save for your retirement, you should consider an RRSP first. Contributing to an RRSP lets you pay less taxes on your income, and you could also get a tax refund and increase your government benefits.
- You should consider contributing to a TFSA if you want to access your savings before retirement or build an emergency fund. Later on, you can top up your retirement savings with your TFSA contributions.
Buy or build a first home
An RRSP allows you to take advantage of the Home Buyers' Plan (HBP) and make a tax-free withdrawal that you pay back over 15 years.
The first home savings account (FHSA) is another good option for homebuyers. Contributing to an FHSA reduces your taxable income. The money you earn and qualifying withdrawals you make are tax-free. You can also transfer funds from an RRSP to an FHSA tax-free, up to your contribution limit. If you qualify, you'll reap the benefits of this new plan to buy a home.
How to reach your savings goals more easily
Here are 3 practical tips to help you build your savings all year round.
Start contributing as soon as possible
Don't wait to start saving. Small amounts add up and make a real difference in the long run. Plus, you won't have to step up your efforts as you near retirement.
Make monthly contributions
Make small contributions each month instead of one big annual one. This is a good habit that will help keep your budget on track.
Set up automatic transfers
With automatic transfers, your contributions are taken directly out of your account. Choose how much and how often you want to contribute and you won't have to think about it all year!
Further guidance
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FAQ
The RRSP and the TFSA are complementary plans. Your best choice will depend on your situation and needs.
The RRSP is mainly used for retirement and the TFSA is ideal for different projects.
Contact us to find the plan or combination that best suits your needs and savings goals.
You could combine the funds in your FHSA, RRSP and TFSA or use them separately to buy or build a home.
The first home savings account (FHSA) is ideal for saving for a down payment. Contributing to an FHSA reduces your taxable income. The money you earn and qualifying withdrawals you make are tax-free.
An RRSP is also worth considering because it allows you to participate in the Home Buyers' Plan (HBP). This government program lets you make a tax-free withdrawal from your RRSP to buy or build a home. You can also transfer money from your RRSP to an FHSA tax-free, up to your contribution limit.
You could use your TFSA to top up your down payment. This is also a good option if you don't meet the criteria for the FHSA or HBP.
RRSP
- Contributions are deductible from your taxable income
- Withdrawals are taxed
- Investment income becomes taxable when withdrawn
- Taxation at death: Yes, unless your RRSP is transferred to your spouse or common-law partner or to a dependent child or grandchild
TFSA
- Contributions are not deductible from your taxable income
- Withdrawals are tax-free
- Investment income is tax-free when withdrawn
- Taxation at death: No. After your death, your spouse or common-law partner can transfer the funds in your TFSA into their own. This will not affect their contribution room.
You can contribute to your spouse's or common-law partner's RRSP and have the contribution deducted from your taxable income, even if you aren't the beneficiary.
You can't contribute to your spouse's or common-law partner's TFSA. You can give your spouse or common-law partner money to contribute to their TFSA but this amount or any earned income from that amount will not be attributed back to you.
RRSP
RRSP withdrawals are taxable. They can reduce government benefits and credits that are based on income.
Funds withdrawn from your RRSP cannot be paid back, except under the Home Buyer's Plan (HBP) or Lifelong Learning Plan (LLP).
TFSA
TFSAs allow you to withdraw money when you want. Withdrawals are tax-free. They have no impact on government benefits and credits that are based on income.
Any money you withdraw will free up new contribution room the following year.
Start contributing
By phone
Montreal area:
514-224-7737 Phone number of customer service for the Montreal area. This link opens your phone app. (514-CAISSES)
Elsewhere in Canada:
1-800-224-7737 Phone number of customer service for Canada. This link opens your phone app. (1-800-CAISSES)
We can also call you when it's convenient.