TFSAs and RRSPs are registered savings plans that allow you to save money tax-free.
The two plans complement each other because they meet different types of needs:
- RRSPs are designed to help you save for retirement.
- Non-taxable withdrawals make TFSAs a good tool to help you save for projects: buying a car, renovating your home, starting a business or taking a trip.
There may, however, be exceptions to these rules. For example:
- TFSAs may be better than RRSPs to save for retirement.
- Borrowing from your RRSP to buy a home is often a very effective strategy.
- A TFSA may also be useful when you have contributed the maximum to your RRSP and are seeking an additional tax deduction.
TFSA and RRSP comparison chart
|Contribution deadline||January 1 to December 31 of current year||February 29, 2012|
|Age limit||None||The year of your 71st birthday|
|Contribution amount||Up to $5,000 per year since 2009 for everyone||18% of income earned the preceding year, up to $22,000 in 2010 and $22,450 in 2011.|
|Are contributions income tax deductible?||No||Yes|
|Unused contribution room||The unused portion of your maximum allowable contributions since 2009||The unused portion of your maximum annual amount deductible since 1991|
|Excess contributions||Not allowed||Up to $2,000 above the maximum allowable annual contribution|
|Impact of withdrawals on benefits from social programs||None||Added to taxable income.|
|Do withdrawals increase contribution room?||Yes, equal to the qualifying amount withdrawn* and added to the contribution room for the following year.||No|
|Are spousal contributions allowed?||No. However, money you give your spouse to contribute to a TFSA is not subject to attribution rules.||Yes. The contributing spouse claims the tax deduction even if he or she not the beneficiary.|
|Taxable upon death?||No. Amounts generated prior to death can be rolled over to the spouse tax-free.||Yes, except if rolled over to spouse, or to minor or disabled child.|
|Can it be used as collateral for a loan?||Yes||No|
TFSA- and RRSP-eligible investments
Choose from our wide range of savings products to invest in your TFSA and RRSP plans.
|Type of investments||TFSA||RRSP|
|Regular Savings Account||
|Tax-Free Savings Account||
|Guaranteed fixed-rate investments||
|Market-linked guaranteed investments||
* Following changes recommended by Finance Canada, withdrawals of overcontributions, non-qualified investments and amounts attributable to swap transactions, or of any related investment income, do not create additional TFSA contribution room. Some of this income will be taxed at 100%.