Reviewed by Paul Thorne
RRSP vs TFSA: What’s the difference?
RRSPs and TFSAs both offer tax benefits that can help you grow your money long-term. But there are some key differences between them that can make one more suited for your financial and lifestyle goals than the other. When is it a good idea to use an RRSP? A TFSA? Both (if you can)? Here’s a summary of the key differences between an RRSP and a TFSA.
Registered retirement savings plan (RRSP)
RRSP stands for a registered retirement savings plan. You can use an RRSP to help you save for your retirement.
Key RRSP differences:
- you make tax-deductible contributions to RRSPs
- you don’t pay taxes until you withdraw funds (tax-deferred savings)
- your contribution limit is unique to you and your earned income
Tax-free savings account (TFSA)
TFSA stands for a tax-free savings account. You can use a TFSA to help you save for any purpose.
Key TFSA differences:
- you contribute to TFSAs with after-tax dollars
- any growth in your account value is tax-free
- you don’t pay taxes when you withdraw funds from TFSAs
- your contribution limit is unique to you and is based on contribution rules set by the government
RRSP vs TFSA: How contributions work
Both RRSPs and TFSAs limit how much you can contribute. Each has its own rules that will limit:
- how much you can contribute,
- when you can contribute, and
- how long the funds can remain in the plan.
| Rules | RRSP | TFSA |
|---|---|---|
| Who can open an account? | Anyone who:
Note: Depending on
there may be minimum age restrictions on when you can open and contribute to an RRSP. Connect with your financial institution for more detail. |
Anyone who:
In Canada, the age of majority is either 18 or 19 depending on where you live. The age of majority is 19 in:
|
Is there a contribution limit? |
The best way to find out what you can contribute to your RRSP is to check the Notice of Assessment you received after filing your most recent tax return. How much you can contribute depends on a variety of factors:
|
How much you can contribute depends on your age and when you became a Canadian resident. How much you contribute to your TFSA depends on:
|
Is there an upper age limit for making contributions? |
For personal and group RRSPs:
For spousal RRSPs:
|
None. |
Are there tax-deductible contributions? |
Yes. | No. |
Can you carry forward unused contributions? |
Yes, until the end of the year you or your spouse or common-law partner (whoever is younger) turns age 71. | Yes. |
| Can you regain contribution room after withdrawals? | No. There are some exceptions if you borrow money from your RRSP to buy a qualifying home Home Buyers’ Plan or to pay for your education Lifelong Learning Plan. There are detailed rules governing both plans. Speak with a tax advisor to learn more. |
Yes. The amount withdrawn will be added back to your contribution room on January 1 of the following year. |
| When can you contribute? | Any time you have contribution room AND:
|
Any time you have contribution room. |
RRSP vs TFSA: How withdrawals work
Thinking of dipping into your savings? In some cases, it might be better for you to make a withdrawal 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 unless they are made under the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP).
Ideally, you’ll want to withdraw from your RRSP when you’re at a lower income level to maximize your tax benefits compared to when you contributed to it.
| Rules | RRSP | TFSA |
|---|---|---|
Do you pay tax on withdrawals? |
Yes. When you withdraw from your RRSP, your bank or financial institution will withhold a certain percentage (typically between 10% to 20%) of the withdrawal amount for income tax purposes. Depending on your situation, this may not be the final tax you will have to pay on your withdrawal. |
No. |
Do you pay taxes on investment growth? |
Not while invested within the RRSP. Only when you make withdrawals. |
No. |
Are withdrawals part of my taxable income? |
Yes. There are some exceptions if you borrow money to buy a qualifying home with the HBP or to pay for your education with the LLP. | Are withdrawals part of my taxable income? Yes. There are some exceptions if you borrow money to buy a qualifying home with the HBP or to pay for your education with the LLP. In most cases, no. But, if you are receiving provincial social benefits, speak with an advisor. TFSA withdrawals will affect your social assistance benefits. |
| Do I get my contribution room back after I withdraw? | No. You won’t get your RRSP contribution room back when you make a withdrawal. To contribute to your RRSP after a withdrawal, you must have unused contribution room from previous years (Check your current year’s Notice of Assessment for your personal RRSP contribution limit). The last day you can contribute to any RRSP that you own is the end of the year you turn age 71. | Yes. You can recontribute the full amount of your TFSA withdrawal starting January 1 of the following calendar year.
|
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 right now, first consider the purpose for the funds (e.g., short term or long term savings).
Which one you should contribute to first depends on:
- Whether you have RRSP and/or TFSA contribution room
- The goal or purpose for the funds
- When you expect to use the money
- Your current income tax bracket
- What you think you’ll earn in the future
- What you expect your income tax bracket to be in retirement (lower or higher than when you made your RRSP or TFSA contributions)
- If you want the tax deduction from an RRSP contribution, or the ability to make tax-free withdrawals with a TFSA
Our TFSA vs RRSP infographic can help you decide where you might want to put your money.
Connect with an advisor to discuss all your options.
More resources
Try our RRSP calculator to find out how much you need to save
This tool will help you see how changing what you put in your registered retirement savings plan (RRSP) can affect your retirement savings.
RRSP loan calculator
Find out if borrowing money to take advantage of unused RRSP contribution room is right for you.
How to fix an overcontribution to an RRSP or TFSA
Overcontributing to an RRSP or TFSA is an easy mistake to make. You may face overcontribution penalties. Here’s how it can happen, and how to deal with it.
This information is meant for educational and illustrative purposes only. Some conditions, exclusions and restrictions apply. Last updated: November 21, 2024.
1 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 (RRSP only), by calling the Canada Revenue Agency’s Tax Information Phone Service (TIPS) or by logging in to your CRA account. Keep in mind that RRSP and TFSA contribution limits will change from transactions that occur during the year, and which may not be reflected on your Notice of Assessment or with the CRA until a later time. Reach out to a Sun Life advisor to discuss further.