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- RRSPs provide tax deferral, so you will pay tax on amounts withdrawn from the RRSP.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
