What are the key differences?

Here are a few key differences to consider when you decide to save in a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) and/or Non-Registered Savings Account (NREG).

 

RRSP

TFSA

NREG

Getting a tax break
  • Money put into your RRSP lowers your taxable income.
  • Money put into your TFSA has already been taxed.
  • Contributions to your TFSA won’t affect your tax return.
  • Money put into your NREG has already been taxed.
  • Contributions to your NREG won’t affect your tax return.

Things you may use it for
  • Saving for retirement.
  • Buying your first home.
  • Going back to school.
  • Short-term savings for things like a vacation, membership fees or unexpected expenses.
  • Long-term savings for things like a home, new car or retirement.
  • Short-term savings for things like a vacation, membership fees or unexpected expenses.
  • Long-term savings for things like a home, new car or retirement.

Amount you can put in
  • Up to 18% of your earned income from the last year up to a maximum of $27,230 for 2020.*
  • You can also add in any unused contribution room from previous years.
  • Any company sponsored pension plan contributions will lower how much you can put in.
  • You can start to contribute to your TFSA once you turn 18 years old. The contribution limit for 2020 is $6,000.
  • If you haven’t contributed before, you may be able to invest up to $69,500.*
  • There aren’t any limits to the amount you can put in this account.
  • You may want to contribute fully to your TFSA and/or RRSP first.

Taking money out
  • You can access your savings at any time, but you're taxed when you take money out.
  • You may need to pay tax upfront and again when you file your tax return.
  • You may be able to make withdrawals to buy a home or pay for education without triggering immediate tax.
  • You can access your savings at any time.
  • You don’t have to pay taxes when you take money out.
  • Depending on the types of investments in your TFSA, you can withdraw money at any time for any purpose.
  • Any money taken out is added back to your contribution room in the following year.
  • You can access your savings at any time.
  • There is no tax withheld on withdrawals. You’ll have to pay tax on any investment income earned and capital gains** incurred during the year. You’ll need to report this on your tax return.

*You can find out how much you can put into your RRSP or TFSA. View your Canada Revenue Agency (CRA) online account for details.

**A capital gain can occur when you sell an investment for more than its adjusted cost base. A capital loss is the opposite. You can use capital losses to lower capital gains realized from other sources during the year, capital gains reported in the past three years or lower future gains. Depending on the investment, there may be other ways capital gains and losses can be triggered. Visit canada.ca or consult your tax professional for more details on capital gains and losses and how they affect your taxes.

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