During your initial period, one of the best ways to save money is through RRSP and TFSA. Both these plans offer tax benefits and great opportunities to save money. However, understanding the difference between the two can help you choose the right one according to your needs, and make the most out of your savings.

Whether you choose RRSP or TFSA depends on several factors such as the reason you are saving, your time horizon, and your present and future tax rates.

In most cases. The Registered Retirement Savings Plans (RRSP) and TFSA in Ontario, Canada , is best suited for high-income individuals, who want to save for their retirement, for their home, or for further expenses. While the Tax-Free Savings Account (TFSA) offers benefits to individuals with lower income, and someone who wants to save to accomplish expenses for short term goals like a family trip, home restoration, and so on.

What is RRSP ?

A Registered Retirement Savings Plan is where you can give till 71 years of age. Here are some of the major benefits you can get from RRSP:

● You do not have to pay tax on the money that you save under RRSP unless it is withdrawn.

● Your spouse/ better half can contribute to the RRSP savings.

● Your RRSP contributions include withdrawals from your income which results in lower taxable income.

● You only have to pay tax for the money you withdraw from the RRSP savings. If you are retired and want to withdraw money frequently, your tax rates can be fewer because your yearly income could be less at that time.

What is TFSA ?

TFSA stands for Tax-Free Savings Account to which you can add at the age of 18 or more. Here are some of the major benefits you can get from TFSA:

● You do not have to pay tax for any sum earned under TFSA or on the money you withdraw from these savings.

● There is no time limit for the contributions, thus you can give or add money to your TFSA at any given time. Any unused contribution room is carried forward on January 1 every year.

● If you take out the sum from your TFSA, you can add it back to your account but you need to wait for the following year to do so.

● You can set your TFSA savings towards various large expenses, including further education and academic courses, down payment for a home, and so on.
● Your spouse can also contribute to TFSA funds without attributing the income

The Major Differences between RRSP and TFSA

Although both RRSP and TFSA focus on savings, these two are not the same. Here are a few major differences between the two:

● RRSP is a retirement saving plan. While TFSA can be put forth for any kind of saving plan or goals.

● The RRSP givers are tax deductibles but the TFSA contributors are not. With RRSP you withdraw from the income you report on your tax return, With TFSA you cannot withdraw your contribution on your tax return.

● You need to pay tax on your RRSP contributions because you made withdrawals with pre-tax dollars. The TFSA withdrawals are free from tax because you make contributions after tax dollars.

● The last day you can add a contribution to your RRSP savings is 31st December of the year you turn 71, after which it needs to shut. While with TFSA there is no age limit to close at a certain age.

● To give or add up to RRSP you require earned income. But it is not the same for TFSA.

● Both the plans allow you to add your spouse as a beneficiary, The money will belong to them after your death, But in the case of RRSP, after the death of your spouse, the taxes will show up on any money that is left in the account. So, if the money is transferred to your children, they can withdraw what is left after-tax deduction. In the case of TFSA, only the increase in the value of TFSA after the date of death is taxed in the year the children obtain it. But if the amount they receive is not higher than the value of TFSA at death, they are not liable to pay any tax.


Registered Retirement Savings Plans (RRSP) as the name suggests is a retirement savings plan to which you or your spouse can contribute. It is a retirement savings plan for employed or self-employed people initiated by the Canadian Income Tax Act in 1957.

The plan allows specifically to offer tax breaks to those who invest in RRSP and add up money for their retirement plan. In simple words, any money you add to the RRSP will be exempted from the CRA taxes the year you make the deposit, and will only be taxed once you withdraw the deposit. Therefore, RRSP provides a great way to cut down taxes for the current year.

Overall, the RRSP plan mainly offers two main advantages – First of all the contributors can deduct the contributions against their income. For instance, if the contributor’s tax rate is 30%, for each $100 they invest in an RRSP, it will save that individual $20 in taxes, up to their contribution limit.

Secondly, the growth of the RRSP investments is tax-deferred. Therefore, the investments under RRSP composite on a pre-deferred basis. As a result, an individual under the RRSP plan can delay their payment of taxes until they are retired. Upon retirement, their marginal tax could be lesser than their working years. The Canadian Government provides these tax benefits to their citizens to encourage savings for the period after retirement.

There are different types of RRSP, but in general, the most basic ones are discussed below:

● An individual RRSP is usually for an independent or single person who is the account holder as well as the contributor.

● A spousal RRSP provides advantages to a single spouse and provides tax benefits for them both. An individual who is earning higher may contribute to the spousal RRSP under the name of their spouse. Since the retirement income is equally divided, each individual can benefit from the lower tax rates.

● A group RRSP is set by an employer for the employees and receives funds from the payroll deductions. It is managed by an investment manager and provides contributors with the advantage of instant tax savings.

● A pooled RRSP is a great option for small business or startups employees and employers, as well as self-employed and entrepreneurs.

The Registered Retirement Savings Plan (RRSP) limit for 2022 is $29,210, according to the Canada Revenue Agency. The RRSP account holder can withdraw money at any age. Moreover, any sum is included as taxable income in the year of withdrawal, until it is used to purchase a home or spent on education.

The year the RRSP account holder turns 71, the balance needs to be transferred to the Registered Retirement Income Fund or an annuity.

RRSP and TFSA in Ontario, Canada

However, in case of death, the returns are given out to the beneficiary as named in the RRSP. In most cases, the undertaking of the RRSP remains tax-sheltered, in case they are transferred to the beneficiary if the beneficiary is the spouse, common-in-law partner, or child who is financially dependent.

In other cases, the balance in the RRSP is covered under the final tax return.
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