Differences between a TFSA and an RRSP
You can get the same tax-free growth protection within a TFSA or an RRSP, but there are differences.
|
RRSP |
TFSA |
|---|
| Eligibility |
Anyone who earned income subject to Canadian taxation, including non-residents |
Any Canadian resident age 18 or over |
Maximum annual
contribution limit |
Your allowable RRSP contribution for the current year is the lower of: - 18% of your earned income from the previous year
- The maximum annual contribution limit for the taxation year
- The remaining limit after any company-sponsored pension plan contributions
|
$5,000 per year, indexed to inflation |
Contributions are
tax deductible |
Yes |
No |
Investment gains are taxed
(interest, dividends, and capital gains) |
Yes, it grows tax free while invested but is taxable at your marginal tax rate when withdrawn |
No |
| Withdrawals are taxed |
Yes, unless withdrawn using the Home Buyers Plan (HBP)1 and the Lifelong Learning Plan (LLP)2 |
No |
Unused contribution room
can be carried forward |
Yes |
Yes |
Withdrawals can be
re-contributed in future years |
No, unless withdrawn using the HBP or LLP |
Yes3 |
Contribution limit may be
reduced by employer pension plan contributions |
Yes |
No |
Implications when you
reach age 71 |
Four options: - Withdraw your RRSP as taxable income
- Transfer it to a Registered Retirement Income Fund (RRIF) on or before December 31 of the year you turn 71
- Purchase an annuity that guarantees payments for a fixed term or as long as you live
- Do a combination of any of the above
|
None |
Rates are provided for information purposes only and are subject to change at any time. 1 HBP allows you to withdraw up to $25,000 to buy or build a home for yourself or a relative with a disability. 2 LLP allows you to withdraw money to finance training or education for you, your spouse, or your common-law partner. 3 TFSA Withdrawal amounts cannot be re-contributed in the same year.