TFSA vs. RRSP

What are the differences between a TFSA and RRSP?

Here are some of the main differences between a TFSA and RRSP accounts below:

TFSA (After-tax money in, no tax on the way out)

• It is a way for individuals (18+ with a valid SIN) to set money aside tax-free throughout their lifetime.

• TFSA contributions are not deductible for income tax purposes because on withdrawal the capital gain is not taxed. This is why they have lower limits than RRSP’s.

• Amounts contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.

• Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not tax deductible.

RRSP (Pre-tax money in, tax on the way out)

• An RRSP is a retirement savings plan that you establish, that the CRA registers, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax.

• Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan.

To learn more about these different accounts, visit the CRA website (TFSA and RRSP) or schedule a free consultation with us.