retirement planning Ottawa

Should You Put Your Retirement Fund In A TFSA Or An RRSP?

In Canada, two financial tools for saving for the future stand out: tax-free savings accounts (TFSA) and registered retirement savings plans (RRSP). Both offer tax advantages and can help you achieve your savings goals. You can put your money into an RRSP, a TFSA, or both. But before you decide, it’s a good idea to learn about the differences between the two.



An RRSP is a government-sponsored account specifically designed for retirement savings. It offers significant tax advantages upfront. Your contributions are tax-exempt, and you can lower your tax bill if you put a portion of your income into an RRSP. The trade-off is that when you eventually make a withdrawal, you’ll have to pay taxes.


Who should use an RRSP

If you have an income of more than $50,000 per year, then putting money into an RRSP has benefits. Using an RRSP can help you avoid paying a high tax rate today in exchange for paying a low tax rate when you withdraw the money during your retirement years.

If you withdraw from your RRSP early, you’ll have to pay a withholding tax plus declare the withdrawal as income when filing your taxes. Exceptions are if you're purchasing your first home or paying tuition.

When you turn 71, an RRSP converts into a Registered Retirement Income Fund (RRIF), and you’ll be required to make minimum annual withdrawals.



Unlike an RRSP, you don’t pay taxes on the income you put into a TFSA. This means you can use a TFSA to save for a down payment on a car, a wedding or trip. Any gains you make through your TFSA are tax-free, and so are your withdrawals.


Who should use a TFSA

If you have an annual income that’s lower than $50,000, then a TFSA might be the best choice. Unlike an RRSP, a TFSA isn’t linked to your income. Everyone has the same contribution room, and it keeps growing every year. An RRSP limits your contributions to 18 per cent of your income.

Plus, if you’re saving for something other than retirement, a TFSA gives you the flexibility to withdraw any amount of money at any time. It doesn’t expire, so you can continue putting money back into it after you make a withdrawal.


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