Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP)

RRSP or TFSA?

Chances are you’ve heard about the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). These accounts work harmoniously to enhance your finances through tax deductions, no tax, or other benefits. The sooner you open these accounts, the sooner they can help you towards your life’s goals.

It’s important to know the particular benefits of these accounts for various goals you may have.

Your Wedding

Using a TFSA

Weddings seem to have a way of going past their budgets (in some cases, way past). Not to worry, though—with a TFSA, withdrawals are tax-free, so you won’t have to worry about any extra fees come tax season.

Using an RRSP

Dipping into your RRSP for this, however, would then be added to your taxable income for the year, so not the best choice.

Your First Home

Using an RRSP

Through the Home Buyer’s Plan (HBP), first-time homebuyers can withdraw up to $35,000 from their RRSP tax-free for a down payment. Plus, if your spouse has an individual RRSP and is also a first-time home buyer, they can also take out $35,000 for a combined, tax-free maximum of $70,000.

Using a TFSA

That being said, your TFSA has no withdrawal limit, making it another great option to have.

Your Education

Using an RRSP

Whether you’re going back to school or attending for the first time, your RRSP can help through the Lifelong Learning Plan (LLP). The LLP allows you to withdraw up to $10,000 per year tax-free if the funds are going towards a full-time education at a designated institution.

Using a TFSA

While it doesn’t offer an education plan, your TFSA also includes tax-free withdrawals.

Your Retirement

Using an RRSP

While your RRSP is a great asset in retirement, you will still pay taxes on your withdrawals as it counts as a form of income. However, if you’ve finished working, you’ll likely be in a lower tax bracket and could pay fewer taxes on these withdrawals.

Using a TFSA

On the other hand, withdrawals are always tax-free from a TFSA; valuable food for thought.

Whichever life path you choose for yourself, these accounts can help you save along the way. If you have any questions on either savings vehicle, don’t hesitate to get in touch with our office.