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
|
TFSA |
RRSP |
|
| 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 |
| Withdrawals | Non-taxable | Taxable |
| Investment income | Non-taxable | Non-taxable |
| 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 | Yes, equal to the qualifying amount withdrawn* and added to the contribution room for the following year.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%.