RRSP vs. TFSA: Which is best for you?

During RRSP season, people often ask, “Should I invest in an RRSP or a TFSA?”

While both of these types of accounts allow your investments to grow tax-free, they each have different rules. Let’s take a closer look at each one to help you decide which might be best for you.

What is an RRSP and how does it work?

A Registered Retirement Savings Plan (RRSP) is a government tax-deferred account. In this plan, the contributions you make are deducted from your taxable income. You will enjoy a reduction of income tax in the year you add money to your RRSP — and your savings will grow tax-free within the account.

Within your RRSP account you can have all manner of investments, from savings accounts and GIC deposits, to mutual funds, equities, bonds and exchange-traded funds (ETFs). Your money can be allocated into any of these products and the interest, dividends or capital gains that your investments earn will be sheltered from taxation.

When you retire, the money is typically converted to a Registered Retirement Income Fund (RRIF). At that point, you would begin to withdraw your saved money from the plan and would have to pay tax on the withdrawal. This allows you to defer paying tax on that income for as long as you hold these funds in the account.

For 2019, the maximum contribution for your RRSP is the smaller of these two options: either 18% of your income or $26,500. If you don’t contribute the maximum, you can also carry unused contributions forward to the following year.

What is TFSA and how does it work?

The Tax-Free Savings Account is very similar to the RRSP, but the difference between these plans lies in the rules around taxation.

The money you have contributed to the TFSA can be allocated to any of the same savings and investment products that are eligible for the RRSP. The interest, dividends or capital gains that your investments earn will be sheltered from taxation.

Unlike the RRSP, your contributions to the TFSA do not attract a deduction from income tax. The money in your plan is therefore regarded as ‘after-tax’ proceeds, and you will not pay any taxes on withdrawals.

For 2019, the maximum contribution is $6,000 — and just like RRSPs, you can carry unused contributions forward to next year.

So, which is better for you: an RRSP or a TFSA?

The answer is different for everyone. It depends on your circumstances and why you’re saving.

Related: 6 simple answers to make estate planning easy

Helping you decide

These savings plans are effective tools that you should use to your advantage. Our advisors can help work out which account is best suited to your individual circumstances.

Call or email us today to set up an appointment with an advisor and start building your tax-free investments.


Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit union and their communities. Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. This article is provided as a general source of information and should not be considered personal advice. Please speak to your personal financial representative before making any financial planning decision or implementing any strategy.


About Ryan Fontaine

Ryan is a Senior Wealth Consultant and Investment Advisor with Credential Financial Strategies Inc. and Credential Securities. With two decades of experience, he assists our members with the development and execution of their financial plans. He is passionate about helping people save their hard-earned money. Contact: Credential Financial Strategies 200-900 Harrow Street East rfontaine@assiniboine.mb.ca 204.258.3392 Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.

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