What's the difference between an RRSP and a TFSA?
Registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) allow you to grow your money tax-free throughout the year. RRSPs are designed mainly to help you save for retirement. TFSAs are ideal for saving for any type of goal or building an emergency fund.
You can combine the two plans and take advantage of their different tax benefits to help you reach your goals.
How RRSPs work
Who can contribute?
Anyone who has qualifying income (such as a salary).
You can contribute until December 31 of the year you turn 71.
Contribution deadline
For the 2025 tax year: March 2, 2026
Contribution room
18% of the income you earned the previous year, up to a maximum of $32,490 for the 2025 tax year and $33,810 for 2026.
Plus unused contribution room accumulated since 1991.
Tax implications
Contributions are deductible from taxable income.
Withdrawals are taxable.
Excess contributions
If you go over your contribution limit and the additional permitted $2,000, a 1% penalty per month applies.
How TFSAs work
Who can contribute?
Anyone who is 18 or older, has a valid social insurance number and is a Canadian tax resident.
There's no maximum age to contribute.
Contribution deadline
December 31 of the current year
Contribution room
Maximum annual contribution for 2026: $7,000
You start accumulating unused contribution room from when you're eligible to open a TFSA, as early as 2009. Withdrawals from your TFSA get added back to your contribution room for the following year.
Tax implications
Contributions are not deductible from taxable income.
Withdrawals are tax-free.
Excess contributions
A 1% per month penalty applies to every dollar over the limit.
Combining your RRSP and TFSA for a winning strategy
The RRSP and TFSA are registered savings plans that complement one another. By diversifying your investments across these two plans, you can get the tax advantages of both.
Retirement or other goals
- If you want to save for your retirement, you should consider an RRSP first. Contributing to an RRSP lets you pay less taxes on your income, and you could also get a tax refund and increase your government benefits.
- You should consider contributing to a TFSA if you want to access your savings before retirement or build an emergency fund. A TFSA is also useful for supplementing retirement savings, as the interest you earn and withdrawals you make are tax-free.
You can take advantage of each plan’s benefits in different ways. For example, you can invest your tax refund from making RRSP contributions in a TFSA.
Buy or build a first home
- If you’re an eligible first-time home buyer, it’s a good idea to start off with a first home savings account (FHSA). Your FHSA contributions reduce your taxable income, and you aren’t taxed on the interest you earn and qualifying withdrawals.
- If you’re already contributing to an RRSP, you can transfer funds tax-free to an FHSA, up to your FHSA contribution limit. This way, you can reap the FHSA’s benefits to reach your homeownership goal.
- An RRSP also allows you to take advantage of the Home Buyers’ Plan (HBP), where you can make a tax-free withdrawal from your RRSP that you pay back over 15 years.
How to reach your savings goals more easily
Here are 3 practical tips to help you build your savings all year round.
Start contributing as soon as possible
Don't wait to start saving. Small amounts add up and make a real difference in the long run. Plus, you won't have to step up your efforts as you near retirement.
Make monthly contributions
Make small contributions each month instead of one big annual one. This is a good habit that will help keep your budget on track.
Set up automatic transfers
With automatic transfers, your contributions are taken directly out of your account. Choose how much and how often you want to contribute, and you won't have to think about it all year!
Further guidance
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FAQ
Which is better, investing in an RRSP or a TFSA?
The RRSP and the TFSA are registered savings plans with benefits that complement one another. You can contribute strategically to both plans to take advantage of their tax benefits and reach your savings goals.
The RRSP is mainly used for retirement, and making contributions reduces your taxable income.
The TFSA can be used for medium- or long-term goals. Your money grows tax-free in a TFSA, meaning you don’t pay taxes on your investment returns and withdrawals.
Contact us to determine the investment strategy that best suits your needs and maximizes your savings.
FHSA vs TFSA vs RRSP: Which one is best for buying a first home?
You could combine the funds in your FHSA, RRSP and TFSA or use them separately to buy or build a first home.
The first home savings account (FHSA) is ideal for saving for a down payment. Contributing to an FHSA reduces your taxable income. The money you earn and qualifying withdrawals you make are tax-free.
An RRSP is also worth considering because it allows you to participate in the Home Buyers' Plan (HBP). The HBP lets you make a tax-free withdrawal from your RRSP to buy or build a first home. You can also transfer money from your RRSP to an FHSA tax-free, up to your contribution limit.
You could use your TFSA to top up your down payment. This is also a good option if you don't meet the criteria for the FHSA or HBP.
What are the tax implications for an RRSP and TFSA?
RRSP
- Contributions are deductible from your taxable income
- Withdrawals are taxed
- Investment income becomes taxable when withdrawn
- Taxation at death: Yes, unless your RRSP is transferred to your spouse or common-law partner or to a dependent child or grandchild
TFSA
- Contributions are not deductible from your taxable income
- Withdrawals are tax-free
- Investment income is tax-free when withdrawn
- Taxation at death: No. After your death, your spouse or common-law partner can transfer the funds in your TFSA into their own. This will not affect their contribution room.
Can I contribute to my spouse's or common-law partner's RRSP or TFSA?
You can contribute to an RRSP with your spouse or common-law partner named as the beneficiary. These contributions will then get deducted from your taxable income.
You can't contribute to your spouse's or common-law partner's TFSA. You can give your spouse or common-law partner money to contribute to their TFSA, but this amount or any earned income from that amount will not be attributed back to you.
What if I make a withdrawal?
RRSP
RRSP withdrawals are taxable. They can reduce government benefits and credits that are based on income.
Funds withdrawn from your RRSP cannot be paid back, except under the Home Buyer's Plan (HBP) or Lifelong Learning Plan (LLP).
TFSA
TFSAs allow you to withdraw money when you want, although you might be limited by the types of investments you hold. Withdrawals are tax-free. They have no impact on government benefits and credits that are based on income.
Any money you withdraw will free up new contribution room the following year.
Start contributing
By phone
Montreal area:
514-224-7737 Phone number of customer service for the Montreal area. This link opens your phone app. (514-CAISSES)
Elsewhere in Canada:
1-800-224-7737 Phone number of customer service for Canada. This link opens your phone app. (1-800-CAISSES)
We can also call you when it's convenient.