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TFSA or RRSP? A quick primer

You’ve decided to start saving for your retirement or for a specific project. That’s great! Now you’re looking for the best savings vehicle. Maybe you’re wondering whether to invest in a TFSA or an RRSP. These questions are normal, and it takes some analysis to make the right choice.

In this article, we’ve summarized the key features of the Tax-Free Savings Account and the Registered Retirement Savings Plan. In only a few minutes, you will understand the difference, providing with the tools to make informed decisions.

You may also find that you can choose both of these registered savings solutions: since the TFSA and RRSP offer different benefits, it may be advantageous to invest in both.

RRSP: for retirement and tax savings

First, let’s check out the main features of a Registered Retirement Savings Plan. Your contributions are tax-deductible, but taxes will be due upon withdrawal. What about the contribution room (the amount you are allowed to invest each year)? With an RRSP, you can contribute up to 18% of your previous year’s income, up to a maximum of the yearly limit, which stands at $29,210 for 2022.

As you might have guessed from the name, an RRSP is a great way to plan for retirement. Your contributions will reduce your tax bill, which makes sense if you have a lot of expenses. But this savings vehicle can also be useful if you are considering home ownership. Learn more about the Home Buyers Plan (HBP). At a time when access to property is often difficult, don’t miss out on this opportunity!

Your RRSP can also be used for the Lifelong Learning Plan (LLP) if you are considering going back to school. The LLP allows you to withdraw up to $20,000 from your RRSP each year to pay for full-time education or training. This money can also be used for your partner or spouse. The amount withdrawn is tax-free. Certain eligibility requirements apply, so check to see whether this option is right for you.

You can contribute to an RRSP as soon as you have declared your income for the previous year. You have until March 1 of each year to contribute for the previous year. You can also contribute to an RRSP until the end of the year of your 71 st birthday. During that same year, you will be required to withdraw your funds, which can be converted into a Registered Retirement Income Fund (RRIF) or an annuity.

Now let’s check out the TFSA to help you decide between a TFSA and an RRSP, or to understand how and why you could even combine them!

Do you have a project in mind? The TFSA is a good solution

With a TFSA, your money is tax-free when you withdraw it. This means that by contributing to a TFSA, you are not getting any up-front tax deductions, but all profits stemming from these funds will be tax-free. Do you want to withdraw the amount invested before you retire, for a special project or in case of unforeseen circumstances? Then a TFSA may be the answer.

The TFSA’s withdrawal flexibility makes it attractive. However, its biggest advantage is that it allows your savings to grow tax-free. You’ll want to leave your money in the account long enough to earn a good return.

The TFSA contribution limit for 2023 is $6,500. To learn more, visit this page.

A TFSA can also be great for retirement

Unlike an RRSP, there is no age limit for contributing to a TFSA, so you can keep it even after you retire, and your money will continue to grow. Remember that withdrawals are not taxed. And TFSA withdrawals do not affect your government benefits. A TFSA is therefore an excellent source of extra income after you retire.

TFSA or RRSP: why not both?

So: TFSA or RRSP? Each has its advantages, but there is no single best option. With a TFSA, you aim for maximum tax-free returns, which is ideal for short- or medium-term projects. With an RRSP, you save for retirement while reducing your taxable income. This is a good strategy at a time in your life when you’re working hard to accumulate wealth.

There’s nothing to stop you from trying both approaches and taking advantage of each savings vehicle’s benefits. Either way, talk to your advisor to determine which strategy best suits your needs and situation. And above all, get started as soon as possible!

Finally, a few tips on TFSAs and RRSPs

Here are some things to keep in mind when you choose a TFSA or an RRSP:


  • Contributing early and being disciplined: 2 winning conditions.
  • Consider RRSPs for home ownership or going back to school.
  • Name a beneficiary for your RRSP, someone to inherit when you pass away. This beneficiary can be identified in your will or directly in your RRSP.


  • The TFSA is equitable: the contribution limit is the same for everyone over the age of 18, and this limit is updated periodically.
  • There is a penalty for over-contributing: if you contribute to your TFSA after you have reached your maximum contribution limit, you will be charged a penalty of 1% per month on the excess amount.
  • To get the most out of your TFSA, find out more about compound interest (interest on principal AND interest earned).

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