Solutions for your future needs.

Book a meeting

(905) 568-8338


Using both RRSP and TFSA incentives

Article Licenses: DL, DL, updateable-info, used-in-print-q1-18
Advisor Licenses:

Compliant content provided by Adviceon® Media for educational purposes only.

What are some of the differences between a Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP)?

The tax benefits of the Tax-Free Savings Account (TFSA)

The TFSA is a registered savings account that makes it easy for Canadian taxpayers to earn investment income, as the account title states, tax-free. A TFSA allows you to save money while deferring investment income on the after-tax monies invested.

Contributions to the account are not tax-deductible, and any withdrawals of the contributions and earnings from the account are not taxable. Canadian residents age 18 or older can now contribute annually to a TFSA; the limit is $5,500 for 2018 and $6,000 beginning in 2019. Click here for the updated RRSP contribution details.

The tax benefits of the Registered Retirement Savings Plan (RRSP)

Using both the RRSP and the TFSA incentives

  • Reducing taxes on savings can encourage even greater levels of financial security as you invest. Because there is no tax paid on the investment income in or on withdrawals from a TFSA—Canadians now have a greater incentive to add the TFSA strategy to save for any need or for retirement.
  • Savings help to increase the funds available for investment when you combine your RRSP and your TFSA strategies during retirement.

RRSP and TFSA differences while you invest

  • TFSA contributions are not tax-deductible, but the contributions and the investment earnings are exempt from tax upon withdrawal. The TFSA offers the benefit of allowing after-tax investments to accrue without taxation. Tax assistance provided by a TFSA complements that provided through RRSPs.
  • Unlike an RRSP the money you put into your TFSA cannot be deducted from your income on your tax return. Canadian residents, age 18 and older, can contribute annually to a TFSA.
  • Similar to the RRSP, after you file your tax return each year, the government will determine your remaining available TFSA contribution limit for the coming year. Any unused contribution room gets carried over to the following year. Click here for the updated TFSA contribution details.
  • You can have more than one TFSA insofar as you don’t exceed your contribution limit.
  • Those who expect to be taxed at a lower marginal tax rate in retirement may be better to contribute to an RRSP before a TFSA.
  • There is no TFSA spousal plan. Individuals can provide funds to their spouse or common-law partner to invest in their TFSA, up to the spouse’s or common-law partner’s available room, and the income earned on the contributed amount is generally not attributed back to the spouse or partner who provided the funds.
  • The TFSA may also be a good investment if you are a member of a pension plan and have minimal if any, room to invest in your RRSP due to a high pension adjustment (PA) factor. More generous plans have a higher PA, leaving less room for personal RRSP contributions. You can supplement your retirement savings through the TFSA.

RRSP and TFSA differences while drawing Retirement Income 

  • Unlike an RRSP, which must be converted to a retirement income vehicle at age 71, a TFSA does not have any minimum withdrawal requirement.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
    • For retirees with low income, every dollar withdrawn from an RRSP or RRIF will reduce the Guaranteed Income Supplement (GIS).
    • Money taken out of your tax-free Savings Account is taken out tax-free.
    • You get your contribution room back in the following year. The full amount of withdrawals can be put back into the TFSA in future years.
      • Careful when you re-contribute to a TFSA: Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
    • You don’t have to pay any tax on money you take out of your tax-free Savings Account as you do with an RRSP, so you’re not penalized for short- or long-term saving. This makes the TFSA useful for investors who trade stocks or equity funds frequently.
      • Cautionary Note: Frequent buying and selling in a TFSA for the purpose of profit-taking may alert CRA to unusual tax strategies, which has been suggested lately as a caution.

Summary points

  • RRSP and TFSA Numbers Update
    • The RRSP Maximum contribution for 2018 is $26,230; for 2019, $26,500.
    • In 2018, the annual TFSA limit is $5,500 giving a total of $57,500 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009. The annual limit for 2019 is $6,000, for a total of $63,500 investment room available in 2019 for someone who has been eligible since 2009.
Note: Withdrawals from TFSAs, with gains and losses considered, affects the available TFSA room: To date, unused TFSA contribution room plus total withdrawals made in this year plus next year’s TFSA dollar limit equals the TFSA contribution room at the beginning of next year.
    • Maximum pensionable earnings for 2018 is $55,900; further it is $57,400 in 2019; and the basic exemption amount remains $3,500 for 2018 and 2019.

    Source: CRA

  • Most Canadians will spend their employed lives in a higher average tax bracket than they’ll have in retirement. Thus, an RRSP may be the best way for the majority of Canadians to build a retirement nest egg.
  • If the tax rate at the time of withdrawal is expected to be higher than at the time of contribution, your best choice may be the TFSA.
  • The TFSA can improve savings incentives for low- to modest-income individuals because either the income earned in a TFSA nor the future withdrawals from it affect eligibility for federal income-tested benefits and credits, such as the Canada Child Tax Benefit, the GST credit, the Age Credit, Old Age Security and Guaranteed Income Supplement benefits.
  • Consider consulting your advisor before deciding whether to place money in an RRSP or a TFSA or to find out the combination of contributions that is best for your situation.
  • The following link to a CRA table outline the contribution limits for the annual money purchase (MP), defined benefit (DB), registered retirement savings plan (RRSP), deferred profit sharing plan (DPSP) and the tax-free savings account (TFSA) limits, as well as the year’s maximum pensionable earnings (YMPE) CRA Registered Plan Limits

Revised: December 23, 2018



Publisher's Copyright & Legal Use Disclaimer Replication is prohibited beyond the use of this website. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision or purchase or use of a financial product, including investment or insurance products, and suggest that a professional advisor's counsel is sought, especially with regard to Mutual Funds and Segregated Funds and Investment Funds which have investment risks as noted in the Mutual Fund Disclaimer. All rights reserved by Adviceon®

Disclaimer The particulars contained herein were obtained from sources which we believe are reliable, but are not guaranteed by us and may be incomplete. This website is not deemed to be used as a solicitation in a jurisdiction where this representative is not registered. This content is not intended to provide specific personalized advice, including, without limitation, investment, insurance, financial, legal, accounting or tax advice; and any reference to facts and data provided are from various sources believed to be reliable, but we cannot guarantee they are complete or accurate; and it is intended primarily for Canadian residents only, and the information contained herein is subject to change without notice. References in this Web site to third party goods or services should not be regarded as an endorsement, offer or solicitation of these or any goods or services. Always consult an appropriate professional regarding your particular circumstances before making any financial decision.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investment funds, including segregated fund investments. Please read the fund summary information folder prospectus before investing. Mutual Funds and/or Segregated Funds may not be guaranteed, their market value changes daily and past performance is not indicative of future results. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision. Talk to your advisor before making any financial decision. A description of the key features of the applicable individual variable annuity contract or segregated fund is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.


Get in touch

Progress Private Wealth/Aligned Capital Partners Inc. - Sunil Chugh

5755 Coopers Avenue
Missisauga ON L4Z 1R9

Phone: (905) 568-8338
Fax: (905) 568- 4554