TFSA vs RRSP

A Tax Free Savings Account and a Registered Retirement Savings Plan are commonly confused as a similar product, more than likely a result of the launch date of the TFSA coinciding with the 2009 RRSP Season. The fact is, they are two entirely different vehicles. The following chart will help you identify the key differences between a TFSA and a RRSP.

 

 

RRSP

TFSA

 Purpose  Primarily to save for retirement, can be used to fund education or down payment on a home through special programs, however the funds must be returned within a certain period to avoid taxation.  General, whatever the Owner wishes to save for. Could be an emergency fund, down payment on a house, purchase a new car, etc...
 Tax Benefit  Contributions are tax deductible, reducing your income taxes for that year. Contributions and Interest earned on your RRSP is not taxed until you make a withdrawal, at which point its treated as income and taxed accordingly.  Contributions are NOT tax deductible and do NOT reduce your income taxes for that year. Only Interest earned on your contributions is tax free, including when you withdraw any or all of it. Withdrawals from a TFSA are not treated as income and are not taxed.
  Contribution Limit  Based on income earned the previous year  Uniform annual increase in contribution room for all eligible Canadians regardless of income
  Contribution Room Type  Contribution room can only be used once  Contribution room is reusable. Withdraws from one year carry forward to the next year, meaning you are not penalized or missing out on contribution room if you use your savings
 Minimal Withdrawal Requirement  RRSP must be converted over to a retirement income vehicle no later than at age 71  No minimum withdrawal requirement
 

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