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Colin Barry, MBA, P.Eng, CFP
Colin Barry, MBA, P.Eng, CFP

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Personal Wealth and Finance


April 1, 2024

What are some differences between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP)?

The tax benefits of the Tax-Free Savings Account (TFSA)

The TFSA is a registered savings account that makes it easy for Canadian taxpayers to earn investment income, as the account title states, tax-free. A TFSA allows you to save money while deferring investment income on the after-tax funds invested.

The TFSA offers the benefit of allowing after-tax investments to accrue without taxation. Tax assistance provided by a TFSA complements that provided through RRSPs.

  • Unlike an RRSP, the money you put into your TFSA cannot be deducted from your income on your tax return.
  • Canadian residents, age 18 and older, can contribute annually to a TFSA.
  • Like the RRSP, after you file your tax return each year, the government will determine your remaining available TFSA contribution limit for the coming year. Any unused contribution room gets carried over to the following year.
  • You can have more than one TFSA insofar as you don’t exceed your contribution limit.
  • Those who expect to be taxed at a lower marginal tax rate in retirement may be better to contribute to an RRSP before a TFSA.
  • There is no TFSA spousal plan. Individuals can provide funds to their spouse or common-law partner to invest in their TFSA, up to the spouse’s or common-law partner’s available room. The income earned on the contributed amount is generally not attributed back to the spouse or partner who provided the funds.
  • The TFSA may also be a good investment if you are a pension plan member and have minimal if any, room to invest in your RRSP due to a high pension adjustment (PA) factor. More generous plans have a higher PA, leaving less room for personal RRSP contributions. You can supplement your retirement savings through the TFSA

TFSA Contribution Limits

  • 2009 to 2012: $5,000
  • 2013 and 2014: $5,500
  • 2015: $10,000
  • 2016 to 2018: $5,500
  • 2019 to 2022: $6,000
  • 2023: $6,500
  • 2024: $7,000
  • For further annual contribution limits click here.

Contributions are not deductible from your taxable income. You can add any unused contributions of your annual limit, cumulative back to 2009.

The tax benefits of the Retirement Savings Plan (RRSP)

RRSP contributions are tax-deductible, RRSP withdrawals are added to income and taxed at regular rates. Your RRSP is primarily intended for retirement savings.

RRSP Contribution Limits

18% of the income you earned the previous year, up to an annual maximum of $26,500 in 2019, $27,230 in 2020, $27,830 in 2021, $29,210 in 2022, $30,780 in 2023, and $31,560 in 2024.

  • For further annual contribution limits click here.
  • Contributions are deductible from your taxable income.
  • If you contribute to an employer-sponsored plan, it will reduce your contribution room.
  • Add any unused contributions of your annual limit cumulative back to 1991.

Tactical RRSP and TFSA plans for withdrawing Retirement Income

Unlike an RRSP, which must be converted to an income vehicle: Registered Retirement Income Fund (RRIF) at age 71, a TFSA does not have any minimum withdrawal requirement.

  • 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.
  • For retirees with low income, every dollar withdrawn from an RRSP or RRIF will reduce the Guaranteed Income Supplement (GIS).
  • Money taken out of your tax-free Savings Account is taken out tax-free. You get your contribution room back in the following year. The total 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 subject to a penalty tax.
  • You don’t have to pay any tax on the money you take out of your tax-free Savings Account as you do with an RRSP, so you’re not penalized for short- or long-term savings. A TFSA might be helpful for investors who trade stocks or equity funds frequently. However, buying and selling in a TFSA for profit-taking may alert CRA to unusual tax strategies, which has been suggested lately as a caution.

TFSA contributions are not deductible from your taxable income, thus it is a good place to invest an inheritance.

  • Education planning. Both the traditional Registered Education Savings Plan (RESP) and the TFSA can be used as an educational savings vehicle. A TFSA offers parents another tax-efficient method for this investing.
  • Income splitting with spouses and children (over 18). TFSAs go beyond normal attribution rules, which offer income splitting to high-income spouses and partners and children over 18 years old.
  • Estate planning. Individuals can name surviving spouses and partners as successor account holders, ensuring the tax-free status of a TFSA will continue after death.



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