A Toronto accounting firm helps demystify the difference between an RRSP and TFSA

RRSP or TFSA, Which is the winning option?

Do we put the maximum allowable amount in an RRSP or in a TFSA?

Which savings account is a better option to house our retirement? To save for a rainy day? To renovate our basement or save for a dream vacation? 

What if I am a lower income earner? Are there clear advantages to housing my money in a TFSA over an RRSP?

These are some of the questions that our clients ask us. Below is a table that will help you make sense of some of the differences and similarities between an RRSP (Registered Retirement Savings Plan) and TFSA (Tax-Free Savings Account). 

What is the eligibility age? Not applicable Must be 18 years old 1
What is the yearly contribution limit? You can contribute 18% of previous years earned income, less any pension adjustment, up to the maximum yearly RRSP  contribution limit for that year. For 2018, you can contribute $5,500 including the sum of money withdrawn in previous years.
Are contributions tax deductible? Yes, contributions are tax-deductible and they reduce your taxable income. No, contributions are not tax deductible.
Is the unused contribution room carried forward to subsequent years? Yes, unused contribution room is carried forward until the end of the year in which you turn 71 years old. Yes, unused contribution room is carried forward indefinitely.
Do the savings in the account grow tax-free and tax-deferred and what is the difference between these two terms? Savings in an RRSP are made with pre-tax dollars and grow tax-deferred which means that the money in the account will be taxed once it is withdrawn.


Savings in a TFSA are made with after-tax dollars and grow tax-free which means that the money in the account will never be taxed.
Do withdrawals negatively impact my eligibility to receive government benefits? Given that withdrawals are considered taxable income, the withdrawals that you make could negatively impact your eligibility to receive tax credits and income-tested government benefits such as Old Age Security. The income that you earn and the withdrawals that you make will not negatively impact your eligibility to receive tax credits and income-tested government benefits such as Old Age Security.
Where can I find my contribution room info? Your RRSP contribution room info can be found in one of the following CRA services:

Your TFSA contribution room info can be found in one of the following CRA services:

Do I  need to have earned income to contribute? Yes No
Are there any tax implications to withdrawing money? Yes, savings withdrawn from the account are added to your taxable income. No, savings withdrawn from the account are tax-free.
Are there any penalty taxes to over-contributing? Yes, there is a penalty tax of 1% per month to over-contributing. Note: That this penalty tax is only applicable if you go beyond the $ 2,000-lifetime over-contribution amount. Yes, if you contribute more than your allowable TFSA contribution room, you will be considered to be over-contributing to your TFSA and you will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account. 


What is the main purpose of an RRSP and TFSA? It functions as a retirement savings account. It functions as a savings account for any purpose.

 In certain provinces and territories, the legal age at which an individual can open a TFSA is 19. 

Here are some articles worth reading about RRSPs and TFSAs:

Choosing the right RRSP: Pape ⁄The Toronto Star/By Gordon Pape

In this article, Gordon Pape talks about four different investment choices that you could make when creating an RRSP account. These four choices are 1. A savings plan, 2.  A GIC plan, 3. A mutual fund plan, and 4. A self-directed plan.

Why a TFSA is a great way to sock it away for a rainy day/The Toronto Star/By Gail Vaz-Oxlade

In this article, Gail Vaz-Oxlade describes how a TFSA is a flexible savings account which can be used as an emergency fund or a saving account for retirement. The writer explains the advantages of lower income earners housing their money in a TFSA.

TFSA or RRSP? Try these five tests/The Toronto Star/By Gordon Pape

In this article Gordon Pape describes five different tests that could help you determine if an RRSP or a TFSA is better suited for your situation (e.g., the age test, the pension test, the goals test, the support test and the income test).

The Wealthy Barber explains: TFSA or RRSP?/The Globe and Mail/By David Chilton

This is a book excerpt from David Chilton’s book, The Wealthy Barber Returns: Significantly Older and Marginally Wiser, Dave Chilton Offers His Unique Perspectives on the World of Money.  This illuminating article explains the difference between TFSA and RRSP and some of the pitfalls that you could experience when housing your money in either type of savings account. The take-home message from this article is: “(1) If you go the RRSP route, don’t spend your refund; (2) If you go the TFSA route, don’t spend your TFSA; (3) Whatever route you go, save more!”

If you require additional consultation or want to learn more about our professional accounting services, please do not hesitate to contact us.

Polina Presman, CPA, CA

T- 416-371-6017
F- 416-667-0404

Shani Marzin, CPA, CA

T- 416-731-9031
F- 416-667-0404

S&P Accounting Services LLP
2727 Steeles Ave. W. Suite 300
North York, ON, M3J 3G9


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