RRSP vs TFSA: Which is Better?

One of the most common questions that I am asked by our Canadian readers is: what exactly is the difference between a RRSP (Registered Retirement Savings Plan) and a TFSA (Tax Free Savings Account).

I’m not a financial advisor, but I can go over the general differences between the two plans.

Here are the differences between a RRSP and TFSA:

RRSP - tax deferral plan
TFSA - not a tax deferral plan

RRSP - RRSP contributions deductible for tax purposes
TFSA - TFSA contributions not deductible for tax purposes

RRSP - maximum contribution of 18% of your previous year’s earned income, up to a maximum of $22,970 per year, plus any previously unused contributions
TFSA - maximum contribution of $5,000 per year (based on current levels)

RRSP - gains are shielded from tax until you withdraw
TFSA - gains are never taxed, even when you withdraw

RRSP - money can be withdrawn at any time, will be counted as taxable income when it is withdrawn
TFSA - money can be withdrawn at any time with no penalty

RRSP, TFSA - unused contributions can be carried over

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These are the basic differences between a RRSP and TFSA. If you have any more questions, I would suggest sitting down with a licensed financial advisor in your area.