What are the Benefits of TFSA vs RRSP?

When it comes to saving your money, you have options as to where you’re going to save it and then invest it. TFSA and RRSP are among the standard saving options that you can choose. These accounts are vehicles to drive your investment, you need to figure out which one is best for you.

Here is a breakdown of the benefits of TFSA vs. RRSP and a comparison of what they have to offer.

What is TFSA?

TFSA refers to Tax-Free Savings Account which you can open once you’re 18 years old. You’ll need to have a social insurance number to open this account.

Funds contributed to the account are dollars that you deposit after you’ve already paid income tax. You will not be taxed on any amount you accumulate while your money is in the account. You’ll also get to enjoy tax-free withdrawals.

TFSAs allow you to contribute at any time, and they typically don’t have a contribution deadline. The money you have in the account is easily accessible which allows you many options for saving.

You can use this TFSA account to save money for a vacation, healthcare, emergency, educational purposes, or even leave your money to grow for retirement.

The max contribution you can make to your TFSA in 2021 is $6000, but you can forward any unused contribution room to the next year, allowing you to accumulate room for when you are ready.

If you withdraw money you have to be aware of your contribution room as you can’t simply put it back without knowing how much room you have left for the year.

What is RRSP?

An RRSP refers to a Registered Retirement Savings Plan you can invest in before you’re 71 years old. Although you won’t pay tax on the funds accrued in the RRSP, you’ll be taxed when withdrawing it.

RRSPs accounts are ideal for people saving for their retirement and those seeking a lower taxable income (reducing your income to pay less tax).

When you contribute to your RRSP it reduces the amount of tax you pay on your income (it counts as if you didn’t earn the income you contributed) as it delays the tax until you withdraw the money, which in many cases comes in a lower tax bracket considering you will most likely be retired (not earning as big an income).

You can use your RRSP to purchase your first home but you must repay the amount back into your RRSP within 15 years. You can also use it to gain new skills/knowledge using the Lifelong Learning Plan.

TFSA vs RRSP Comparison

1. Tax Benefits 

A TFSA doesn’t require you to pay any tax on the money earned in the account, even when you decide to withdraw it. On the other hand, an RRSP allows your money to grow while lowering your taxable income (now).

Since these contributions are tax-deductible, you can defer them and enjoy a tax break in the future. Essentially, you pay less income tax currently with an RRSP but pay for it later in life, hopefully at a lower tax rate.

2. Withdrawal Regulations 

A TFSA allows you to withdraw your funds at any time regardless of the intended purpose. After removing your funds, you can re-deposit them back to the account after the financial institution adjusts the contribution room.

In contrast, an RRSP also allows you to withdraw your money at any time regardless of the intended purpose but you will pay tax on it. You could re-deposit funds into the account if you planned to purchase your first home or learn using the Lifelong Learning Plan.

3. Benefits of Contributing to a Spouse’s Account   

When you contribute to your spouse’s RRSP, you can declare it in your tax information and gain a tax benefit. However, TFSAs do not offer such an advantage as they are already tax-free and belong to particular individuals.

4. Maturity of the Account

A TFSA doesn’t have a specified maturity date. You can invest and save in it regardless of your age as long as you’re over 18.   

When it comes to an RRSP, you can save money until you’re 71 years old. Once you attain this age, you’ll have to convert your RSSP to a registered Retirement Income Fund (RRIF). This process must occur by the 31st of December of that year.

Benefits of TFSA Vs RRSP

When looking at TFSA vs. RRSP, you can decide to invest in one or both options. Some individuals prefer using both plans as this tactic helps them attain their savings goals faster. 

If you wish to choose between TFSA and RRSP wisely, it would be best to understand your current and retirement marginal tax rate. It would also help if you thought about your intended use of the money you’re saving.


Factors such as your tax rates, time horizon, and reason for saving can significantly determine which of the two is best for you. Seeking professional advice is the best option when considering what’s best for your investing future.


By: Robert Puharich | November 10, 2021 |