Rubach Wealth

RRSPs and TFSAs: Which is Best for You?

Registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) are tax-advantaged accounts that can help you boost your retirement savings. Both accounts are designed for long-term growth, but they differ in how your contributions are taxed and when you can withdraw funds. Here is a breakdown of the differences between an RRSP and a TFSA and how to choose the best one for you.

Registered retirement savings plans

An RRSP is designed specifically for retirement savings. Anyone with an earned income who files a tax return can contribute to an RRSP. Contributions are tax-deductible and your earnings grow tax-deferred. There is no age requirement for when you can make withdrawals from your RRSP, but when you do withdraw funds, you will pay income taxes on both your contributions and earnings. You will need to claim your withdrawal as income when you file your taxes.

You can contribute up to 18% of your earned income in the previous year to an RRSP, with a maximum contribution amount of $31, 560.00 for tax year 2024. There are no requirements for minimum distributions, but you can no longer make contributions to an RRSP once you turn 71. At that point, you must close your account and either convert it to a registered retirement income fund (RRIF) or buy an annuity.

Tax-free savings accounts

Unlike an RRSP, a TFSA can be used for any kind of savings goal, not just retirement. Anyone age 18 and older can contribute to a TFSA, and you don’t need earned income to qualify.

Contributions to a TFSA are made with after-tax dollars and your earnings grow tax-free. Withdrawals are tax-free and you can take money out at any time for any reason without paying a penalty. And if you do take money out, you can recontribute the same amount the following year in addition to the annual maximum of $7,000.

How to choose which account is best for you

Both RRSPs and TFSAs allow you to grow savings through investments, but how they can be used and how and when they are taxed may have an impact on which account you choose.

An RRSP can only be used for retirement savings. You must have an earned income and file a tax return to qualify. A TFSA, on the other hand, can be used for any savings goal, and anyone age 18 and older can contribute regardless of earned income. RRSPs offer much higher contribution limits, and contributions are tax-deductible, lowering your tax bill the year you contribute. You defer paying taxes until you withdraw funds. TFSAs offer smaller contribution limits; contributions are made with after-tax dollars; and withdrawals are tax-free.

You can make contributions to both accounts at the same time, and if you can afford it, maxing out contributions for each is a great strategy for saving. However, if you can only choose one, first consider your savings goals. If you are saving for something other than retirement, a TFSA may be right for you. You may also want to consider your future tax rate. If you anticipate a higher tax rate in the future, a TFSA may be the better choice, since withdrawals are tax-free. And if you expect a lower tax rate in retirement, an RRSP can offer you more tax advantages since you can lower your taxable income now and pay a lower tax rate on future withdrawals.

Whether you choose to fund an RRSP, TFSA or both, you’ll be taking advantage of tax benefits that can supercharge your savings and bring you closer to achieving your financial goals.

We can help put together a solid long-term plan that suits your financial goals and needs and answer any questions you may have about TFSAs and RRSPs. Contact us at 647-808-7700 or at to get the conversation started.





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