Choosing between TFSA and RRSP depends on various factors such as your goals, time frame of investment, your marginal tax rate, age etc. Discover the similarities and differences between TFSA vs. RRSP Canada.
Once you have enough money to take care of your personal finances and emergencies, you look to invest your money into growth class assets like shares, ETFs, mutual funds, bonds and grow its value over time.
An investment account is one where you can buy these financial instruments.
Tax Free Savings Account or TFSA and Registered Retirement Savings Plan or RRSP are investment accounts that are registered with the federal government of Canada and can be accessed by the Canadian residents.
TFSA was established in 2009, whereas RRSP was established long ago in 1957.
A person above 18 can open a TFSA whereas a person who is below age 71 can start a RRSP.
You can contribute up to $6,500 in TFSA in a particular year according to 2023 limits. As of 2023, you can contribute 18% of your earned income or $30,780 whichever is lesser into a RRSP. You can catch unused contribution room in both the accounts.
You do not have to pay tax on interest returns and capital growth within both TFSA and RRSP. In addition, your contributions within RRSP are tax deductible.
TFSA vs. RRSP - Tax implications: Your funds are taxed at withdrawal in RRSP.
Spouse account: You cannot contribute into a spouse’s TFSA, whereas you can contribute into your partner in law’s RRSP.
The answer to this question depends on various factors:
Both TFSA and RRSP have their own pros and cons. If you have sufficient funds to save, then it might also be prudent to open and invest in a combination of both the plans.
What have you planned? Do you prefer a TFSA or RRSP or both? Feel free to discuss.