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Comparing TFSAs and RRSPs

The advantage of TFSAs and RRSPs is that they allow you to save money tax-free. Also, the 2 plans complement each other because they meet different types of needs.

RRSPs are designed to help you save for retirement.

Non-taxable withdrawals make TFSAs a good tool to help you save for projects: buying a car, renovating your home, starting a business or taking a trip.

There may, however, be exceptions to these rules. For example:

  • TFSAs may be better than RRSPs to save for retirement.
  • Borrowing from your RRSP to buy a home through the Home Buyers' Plan is often a very effective strategy.
  • A TFSA may also be useful when you have contributed the maximum to your RRSP and are seeking an additional tax deduction.

Determining which plan is better for you can be complex. Discuss it with your financial planner.

TFSA and RRSP comparison chart
Contribution deadline January 1 to December 31 of current year February 29, 2016
Age limit From age 18
No maximum age
No minimum age
The year of your 71st birthday at the latest
Contribution amount Annual maximum:
  • 2009 to 2012: $5,000
  • 2013 and 2014: $5,500
  • 2015: $10,000
  • 2016: $5,500
18% of income earned the preceding year, up to $24,930 in 2015 and $25,370 in 2016
Are contributions income tax deductible? No Yes
Withdrawals Non-taxable Taxable
Investment income Non-taxable Non-taxable
Unused contribution room The unused portion of your maximum allowable contributions since 2009 The unused portion of your maximum annual amount deductible since 1991
Excess contributions penalty of 1% per month penalty of 1% per month (lifetime excess contributions of $2,000 allowed).
Impact of withdrawals on benefits from social programs None Added to taxable income.
Do withdrawals increase contribution room? Yes, equal to the qualifying amount withdrawn1 and added to the contribution room for the following year No
Are spousal contributions allowed? No. However, money you give your spouse to contribute to a TFSA is not subject to attribution rules. Yes. The contributing spouse claims the tax deduction even if he or she not the beneficiary.
Taxable upon death? No. Amounts generated prior to death can be rolled over to the spouse tax-free. Yes, except if rolled over to spouse, or to minor or disabled child.
Can it be used as collateral for a loan? Yes No

Tools and tips

An overview of TFSAs

Find out how TFSAs work.

Read tip - Understanding TFSAs

An overview of RRSPs

Find out about the rules of registered retirement savings plans.

Read tip - RRSP 101

  1. Following changes recommended by Finance Canada, withdrawals of overcontributions, non-qualified investments and amounts attributable to swap transactions, or of any related investment income, does not create additional TFSA contribution room. Some of this income will be taxed at 100%.

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