Last updated : December 8, 2023

RRSP vs TFSA: What’s the difference?

Registered retirement savings plans (RRSPs) are designed for retirement savings. RRSPs can hold investments like bonds, stocks, mutual funds, and exchange-traded funds.

 

RRSPs offer:

  • tax-deductible contributions
  • tax-deferred savings (you won’t have to pay taxes until you withdraw funds)

 

More about RRSPs

Tax-free savings accounts (TFSAs) are designed to help you save for any purpose. TFSAs can hold investments like bonds, stocks, mutual funds, and exchange-traded funds.

 

TFSAs offer:

  • tax-free investment growth
  • contributions made with after-tax dollars (you won’t have to pay tax when you withdraw funds)

 

More about TFSAs

RRSP vs TFSA: How contributions work

  RRSP  TFSA
Contribution limit?

18% of your previous year's earned income up to a maximum of $30,780 (2023 limit), plus unused contribution room from previous years Please note: the total amount you can contribute really depends on your personal RRSP contribution room. Please refer to your Notice of Assessment, call the Canada Revenue Agency (CRA), or log in to your CRA account to see your contribution room. .

See rules.

$6,500 in 2023. 

$7,000 in 2024 Please note: the total amount you can contribute really depends on your personal TFSA contribution room  Please refer to your Notice of Assessment, call the Canada Revenue Agency (CRA), or log in to your CRA account to see your contribution room..

See rules.
Age limit for making contributions? You can make contributions until Dec. 31 of the year you turn age 71. No, but must be age 18 or older and a Canadian resident in the year you make your contribution.
Tax-deductible contributions? Yes. No. 
Carry forward unused contributions? Yes. Yes.
Regain contribution room after withdrawals? 

No.

See rules.

Yes. The amount withdrawn will be added back to your contribution room in the following year.

See rules.
When to contribute?

Anytime if you have contribution room and you're under age 71.

See rules.

Anytime if you have contribution room as long as you’re a Canadian resident and age 18 or older.

See rules.

Please note: It’s your responsibility to keep track of your RRSP and TFSA contribution limits. You can view your contribution limits on your Notice of Assessment, by calling the Canada Revenue Agency or by logging in to your CRA account.

RRSP vs TFSA: How withdrawals work

  RRSP TFSA
Pay tax on withdrawals? Yes* See rules. No. See rules.
Pay taxes on investment growth? Only after you make withdrawals.  No. 
Are withdrawals part of my taxable income? Yes. No.

*You’re taxed on your withdrawal, whether it consists of original contributions and/or investment growth.

Thinking of dipping into your savings early? In such cases, it may be preferrable to make withdrawals from your TFSA instead of your RRSP.

You can make withdrawals from your RRSP or TFSA at any time for any reason. But with RRSPs, you’ll have to pay taxes on your withdrawals. You also won’t get your RRSP contribution room back when you make a withdrawal. If you want to recontribute in the future, you’ll need to have unused RRSP contribution room.

With a TFSA withdrawal, you won’t have to pay taxes. This is because you already made contributions with after-tax dollars, and investment growth in a TFSA is tax-free. You can also recontribute the full amount of your TFSA withdrawal starting on January 1 of the following calendar year. Plus, there’s no loss of TFSA contribution room.

RRSP vs TFSA: How taxes work

To put it simply:  

  • RRSPs offer tax-deductible contributions; TFSAs do not.
  • TFSAs offer tax-free withdrawals; RRSPs do not.

But in the end, the pros and cons of a TFSA vs. RRSP contribution or withdrawal may depend on whether you expect your tax bracket in retirement to be lower or higher than when you made the initial contribution.

Federal tax bracket rates for 2023

Tax rate Your taxable income
15% $53,359 or less
20.5% over $53,359 and up to $106,717
26% over $106,717 and up to $165,430
29% over $165,430 and up to $235,675
33% over $235,675

Please note these are federal rates. Provincial rates are added to your federal rate. Your actual tax rate will vary depending on the province or territory where you live. Learn more about federal, provincial and territorial tax rates.

Also consider that TFSA withdrawals are not taxed. That’s why they don’t affect your eligibility for income-linked government benefits like Old Age Security (OAS). Connect with an advisor for more detailed information. 

Is it better to put money in an RRSP or a TFSA? 

It depends on your unique situation. Many people use both RRSPs and TFSAs to save. But if you can contribute to only one account at the moment, then consider the tax bracket you expect to be in when you hope to make your withdrawal. You’ll also want to consider the benefits of each plan. Do you want the tax deduction that comes with RRSPs or the ability to make tax-free withdrawals with a TFSA? Connect with an advisor to discuss all your options.

Need help?

An advisor can help put together a solid plan that suits your financial goals and needs. They can also answer questions you may have about TFSAs, RRSPs, and your personal finances.

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