Ever wonder what the difference between an RRSP and a TFSA is?

What is a RRSP?

A Registered Retirement Savings Plan (RRSP) is a savings plan that is registered with the Canadian government. Contributions to your RRSP reduce your taxable income, which allows you to pay less tax now and build a larger retirement fund for the future.


What are the top benefits of having a RRSP?

  1. Tax deductions-Contributions reduce your taxable income, lowering the tax you pay so you can keep more in your pocket.
  2. Tax-deferral-Your investments grow, tax-deferred, while in the RRSP.
  3. Income splitting-Income-splitting can be achieved through a spousal RRSP which allows the higher income earning spouse to contribute to an RRSP in their spouse's name. This helps even out retirement income and lower your income taxes both now and in retirement. 
  4. Life events-RRSPs can be used for more than just retirement. Canadian government programs allow you to access funds in your RRSP to help you buy your first home or pursue further education. 
What is a TFSA?
The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings account that allows Canadians to earn tax-free investment income to more easily meet savings needs.
What are the top benefits of having a TFSA?
  1. Tax Savings - Investment income earned in a TFSA is tax-free. Withdrawals from a TFSA are tax-free as well. 
  2. Carry Forward - Unused TFSA contribution room is carried forward and accumulates in future years.
  3.  Re-contribute - Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax. 
  4. Eligibility Unaffected - Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.


Whether your savings goal is a comfortable retirement, home ownership or education, RRSPs can be a good option. Take a look at the chart below which compares RRSPs with TFSAs. 

Primary purposeRetirement savings, home purchase or education.Saving for any purpose
Annual contribution limit18% of previous year's earned income (maximum limits apply), less pension adjustmentsTFSA
ContributionsTax-deductibleNot tax-deductible
Unused contribution roomCarried forwardCarried forward
WithdrawalsMoney taken out is taxed as income at your marginal rate.
Withdrawals are counted as income and may affect federal income-tested government benefits such as Old Age Security
You're not taxed on withdrawals.
They do not affect federal income-tested government benefits such as Old Age Securit
Withdrawn amountsContribution room is lost for amounts you withdrawAdded to contribution room in future years
Plan maturityEnd of year when you turn 71None; no upper age limit on contributions
Spousal planYou can contribute directly to a spousal RSPn/a
Eligible investmentsYou can hold savings accounts, GICs, mutual funds, stocks, bondsYou can hold savings accounts, GICs, mutual funds, stocks, bonds
Age minimumN/A18

Many people ask us whether an RRSP is better or a TFSA. The answer is simple: It Depends on your situation and needs. Come talk to us about whether an RRSP or TFSA is the right option for you.

Share this post

Comments (4)

  • anon

    Appreciating the time and energy you put into your blog and in depth information you provide.
    It's awesome to come across a blog every once in a while that isn't
    the same out of date rehashed information. Great read!
    I've saved your site and I'm adding your RSS feeds to my Google account.

    Feb 15, 2015
  • anon

    When someone writes an piece of writing he/she retains the thought of a user in his/her brain that how a user can be aware of it.
    So that's why this article is outstdanding.


    Feb 28, 2015
  • anon

    Thank you for sharing your thoughts. I truly appreciate your efforts and I
    am waiting for your further write ups thank you once again.

    Mar 13, 2015
  • anon

    Thanks a bunch for sharing this with all folks you actually know what you are talking about!

    Mar 14, 2015

Leave a comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

About Us

Diya Professional Corporation originated through the needs of people that are looking for services available only to large enterprises. Diya not only provides financial services but also tries to educate and enlighten its clients. Diya provides clients with the guidance and tools that they need regarding thier financial situation so that they can make informed decisions about thier future. We specialize in financial services for small and medium sized businesses.