Differences between RRSP and TFSA

TFSA

  • Money is easy to access and withdrawals are tax free.
  • Contributions to a TFSA are not tax deductible.
  • Monies earned by the TFSA (dividends, capital gains, interest earned etc.) are tax free.
  • The contribution limit is fixed and does not depend on your income. This can be beneficial for lower income earners because they will not be restricted by their income.

RRSP

  • Contributions are tax deductible.
  • With a few exceptions, money typically stays in an RRSP until retirement. It is more difficult to access than a TFSA.
  • Withdrawing from an RRSP needs to be strategic; too much income during retirement could make you ineligible for old age pension.
  • RRSPs provide tax deferral, so you will pay tax on amounts withdrawn from the RRSP.
  • Your RRSP contribution limit is based on a percentage of your income

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