How to choose between an RRSP and a TFSA

For years Canadians have utilized registered retirement savings plans (RRSPs) as the primary investment vehicle for retirement savings.  With the introduction of tax-free savings accounts (TFSAs), there has been great debate over where to invest: RRSP or TFSA? Although the two account types share some common traits, there are some key differences.




Primary purpose

Mainly meets retirement needs

Meets savings needs throughout your life
and retirement

Annual limit contribution

18% of earned income (subject to the annual contribution limit)

$5,500 per year*

Unused contribution room

Carried forward from year to year

Carried forward from year to year

Taxation on growth

Growth is tax-deferred, meaning you only pay tax on the growth when the money is withdrawn.

The growth accumulates tax-free. You never are required to pay tax on the growth.

Tax deductions

Deposits reduce your income tax for the year. Most people receive a tax refund equal to the deposit multiplied by their marginal tax rate.

No tax deduction. TFSA contributions are
made with after-tax dollars.


Withdrawals do not increase your contribution room the following year. You are charged withholding tax on the amount withdrawn and the amount is reported as taxable income. The income may affect eligibility for government sponsored retirement income programs.

Withdrawals increase your contribution
room the following year. Withdrawals
are not considered "income", they are
not taxed, and they do not affect
eligibility for government sponsored
retirement income programs.

Maturity date

Must be fully withdrawn or transferred to a RRIF or annuity by December 31st of end
of the year in which you turn 71

At Equitable Life a TFSA matures
at age 105

Both account types offer significant advantages.  While an RRSP offers an immediate refund and tax deferral, a TFSA offers flexibility and tax-free growth. Depending on your current income and your expected income during retirement, a balanced retirement plan may include both an RRSP and a TFSA.

Speak to your advisor if you have any questions about a Tax-Free Savings Account. You can also visit the Canada Revenue Agency's website at, where you will find useful information about a Tax-Free Savings Account or their RRSP page at



* Annual  limit is set by Canada  Revenue Agency (CRA) guidelines, currently $5,500 per year.

This information does not constitute legal, tax or other professional advice. Information is believed to be accurate, but accuracy is not guaranteed.