• Jenni Sustrate

What is the difference between a Tax Free Savings Account and an RRSP?

You might be wondering where is a “better spot” to invest your money; a TFSA or an RRSP?  Here’s a little bit of info on them both. 


A tax free savings account can generate the same return that an RRSP can. Just because it’s a “savings” account doesn’t actually mean it’s like the savings account in your bank where it generates barely any interest. This is an investment account and it can be used for anything really. 


I always say to have two of these accounts. One at the bank for your emergency fund and one with an advisor for your retirement needs. You can have more than one TFSA; you just cannot go over your remaining contribution limit. 


TFSA’s are a great short and long term investment vehicle because everything grows tax free in here and you can access it tax free as well. 


So, if you haven’t hit your limit on the TFSA yet I suggest this is a good savings vehicle to look at. RRSP’s definitely have their purpose. Some people are really shying away from these but they still serve a purpose for some. 


RRSP’s are tax deferred which means you will not pay tax on this investment until the day you pull it out. RRSP withdrawals will also increase your annual income by the amount that you’ve withdrawn which can either put you in a higher tax bracket and it can possibly affect your withdrawal limits on your pension plans in retirement. So please talk with an advisor and your accountant before making any big withdrawals from an RRSP so that you are informed about how it could affect you. 


RRSP deposits are still good to lower your income. So, for those who are high paid employees and you are looking to lower your income to pay less tax and RRSP is an option to help you do that. Again, chat with your advisor and an accountant when making these decisions. 


If a group benefit plan is matching you into an RRSP or a TFSA then my advice is to go for it! Any contribution to your retirement made on behalf of an employer is a great bonus!


If you are looking for help, advice or wanting to set up an investment account I’d be happy to help! Book yourself an appointment with me here, I'd be happy to chat! 




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