RRSP vs TFSA

Date: February 19, 2019

Author: Tara Chisholm
Title: Financial Planner
Location: Brandon, Carberry, & Souris
Ext: 8204

There seems to be endless discussions and debates on the internet, TV, in books, and in investment offices across Canada about which is better – a Registered Retirement Savings Plans (RRSP) or a Tax Free Savings Accounts (TFSA)?

While both are used to help Canadians save money, they are certainly not the same. So, when it comes to deciding which one is the better investment for you, the answer is – it depends.

While many think RRSPs and TFSAs are investments in and of themselves, they are actually government-sponsored accounts that can hold a variety of investments within them including stocks, bonds, term deposits and mutual funds. Both offer unique features and benefits that help your money grow.

And that is where their similarities end. Below we’ve outlined some of the main benefits of each to help you determine which product will work best for you.

Benefits of a TFSA:

  • Your investment grows TAX FREE;
  • Ideal for short or long-term goals;
  • Withdrawals can be made at ANY time; and
  • Your contribution room carries forward year-over-year.

Benefits of a RRSP:

  • Ideal for a long-term investment;
  • Intended to help Canadians prepare for retirement;
  • Income earned within an RRSP is not taxed until withdrawal;
  • Money invested (subject to some restrictions) reduces your taxable income, which lowers the amount of annual income tax you pay;
  • RRSPs can be part of a strategy designed to reduce taxable income during higher income years (employment), while paying tax at a reduced rate during retirement; and
  • Funds are eligible for Canadian Government programs that can help you buy your first home or further your education;

As you can see, there are many benefits to both a RRSP and a TFSA. Depending on your circumstance and goals, both could be an option for you. But if you’re still not sure which product to choose, come speak with a member of the Westoba Financial Planning Team. We will assess your financial needs now and for the future to help you make the best decision.