To RSP or to TFSA, that is the question.


Know all their benefits when you're looking for the best ways to save.

Most Canadians are familiar with the Registered Retirement Savings Plan (RRSP), which the federal government introduced in 1957 to help Canadians save for retirement. Many people contribute regularly to an RRSP for the tax deduction benefit and to grow their money in a tax-deferred manner until retirement, at which time they will likely be in a lower tax bracket when they withdraw their accumulated funds.

In 2009, the government introduced the Tax-Free Savings Account (TFSA) as an additional, tax-advantaged way for Canadians to save better. While investors contribute to a TFSA using after-tax dollars, whatever growth they generate in their account is tax-free, as are any withdrawals made. TFSAs can be a smart supplement to the RRSP when saving for retirement, but they can also be used to save for shorter-term goals such as a home, vehicle or vacation.

Which one do you choose?

A common question that investors ask their financial advisor is which plan type is best for them? For most people, it shouldn’t be an “either-or” proposition. Both plans are valuable and help investors be disciplined about saving in a tax-advantaged manner. The table below shows various features of RRSPs and TFSAs. Both plan types allow you to hold a wide range of investments, from mutual funds, exchange-traded funds and stocks to bonds, guaranteed investment certificates (GICs) and cash. Together with your financial advisor, you can determine how best to make use of these two plans based on your tax bracket and your short-term and long-term financial objectives.

Product feature



Annual contribution limit

For 2019, 18% of income earned in the previous year or $26,500, whichever is less. Annual limits typically increase.

For 2019, the limit is $6,000 (not based on income).

Tax-deductible contribution



Other tax consequences

No tax on any investment income or growth. Withholding tax applies if withdrawn before conversion to a Registered Retirement Income Fund (RRIF) or annuity – the amount withdrawn is added to taxable income.

No tax on any investment growth and no tax on any withdrawals.

Contribution carry forward



Minimum/maximum age for contributions

No minimum age, provided income was earned in the previous year and individual has a social insurance number (SIN). Maximum age of 71.

Minimum age for contributions of 18 years. No maximum age applies.

Spousal contributions allowed



Re-contribution of withdrawals

No, except under the Home Buyers’ Plan and the Lifelong Learning Plan.

Yes, in subsequent years but not in the same year of withdrawal.

Over-contribution penalty

Yes, 1% per month if you exceed the $2,000 lifetime over-contribution amount.

Yes, 1% per month on the over-contribution (even if contribution was withdrawn in the same tax year).

Conversion requirement

Must convert plan to a RRIF or annuity by the end of the year in which you turn 71.

No need to convert or collapse plan.

Effect on government benefits

RRSP withdrawals are considered income, so the added income may reduce the amount you receive from income-tested benefits like the Guaranteed Income Supplement (GIS) or Old Age Security (OAS).

No effect, since TFSA withdrawals are not considered income for tax purposes.

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