What’s the difference between RRSPs and TFSAs?

So you’re looking to put some money away—that’s excellent! There are a number of options for your investments, including Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Account (TFSAs), two of the most popular ways to save for the future. While they both are terrific saving and investing tools that help you grow your money tax free, but each also have their individual benefits, and one may be more useful to you than the other.

Here is a head-to-head comparison of what RRSPs and TFSAs can do for you and your finances.


RRSPs are capable of holding a number of investments, including GICs, stocks, mutual funds, and bonds. You are to contribute to your RRSPs with your pre-tax income; your tax refund is your pre-tax money, and given back to you at a later date. While the money that you earn through these investments is sheltered from taxation, you are actually expected to pay the tax when you take the money out from your RRSP account.

The idea is that when you take your money out of your account, you will be at a lower income bracket than when you had put your money in. This means that the average tax rate you’ll pay on your savings and investments will be lower. There is a maximum amount that you can contribute to your RRSPs, which can be calculated by taking 18% from your gross income, or a total of $26,230 (the 2018 limit). This number changes every year, so be sure to check the annual contribution limit.

RRSPs can be helpful in that many people try to avoid getting taxed, so taking money out of the account is often avoided. If you are also teetering between two tax brackets, an RRSP account can help you defer those higher taxes. Some companies also will match RRSP contributions, which can make this a better option for you if are hoping to max out your RRSPs.


TFSAs were introduced in 2009, and are designed to hold a number of investments, just like RRSPs. The difference, however, is that you can contribute up to $5,500 per year, and this contribution room accumulates every year so that you can make up for any missed years. This means that, if you haven’t opened a TFSA before, you can contribute up to $57,500.

You won’t get a tax refund on the money you put into your TFSA account because money contributed is done with after tax income. You are, however, able to withdraw money at anytime, tax free—an awesome benefit of having a TFSA account. Be careful when withdrawing money (which you won’t be taxed on), though, as your TFSA will only give you back your contribution room the next calendar year and you’ll be penalized if you try to do so.

TFSAs are a very flexible investing and savings tool. Since you are already taxed on the money in your account, you can easily take money out without having to calculate how much you’ll be taxed (like RRSPs). But because it’s so easy to take money out of a TFSA account, this can make it hard to save and tempting to use that TFSA money on other things. Other things that make a TFSA the better choice include when you expect to be in a higher tax bracket by the time you retire, or if you earn a low income.

At the end of the day, both will help you reach your savings goals. The most important thing is to understand any tax rules that apply to RRSPs and TFSAs so that you can get the most out of your dollar. Now that you know what both have to offer, as well as the cons that they carry, you’ll be better able to pick which basket to put your eggs into.

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