What’s the difference between a TFSA and an RRSP?

A TFSA and an RRSP. They’re both tax-efficient savings vehicles. They’re both designed to make your life easier. And they both have four initials. However, for as much as they have in common, they also possess unique differences. Here’s a top-level look at what makes a TFSA, a TFSA. And what makes an RRSP, an RRSP.

And of course it goes without saying (but we’ll say it anyway), no matter how simple or complex your savings goals, please remember you needn’t make your financial decisions alone. Don’t hesitate to contact us at 604-877-7000, or visit your nearest branch.

Minimum Age for Contributing Age 18 None
Maximum Age for Contributing None Age 71
Requirement to File a Tax Return Yes Yes
Annual Contribution Limit $5,500* 18% of income with a maximum annual limit determined by the government
Carry-forward of Unused Room Yes Yes
Penalty for Over contributions 1% per month 1% per month
Tax Deduction for Contributions No Yes
Taxation on Withdrawal None Taxed as Income
Impact of Withdrawals Room restored Room not restored
Withdrawals may affect Old Age Security Clawback Not applicable Yes
Potential for Income Splitting Opportunity Not applicable Yes
Deductibility of Interest on Borrowed Funds None None

* On December 7, 2015, the Minister of Finance tabled a ways and means motion which contained provisions to return the TFSA annual contribution limit to $5,500 from $10,000. The proposed changes will take effect on January 1, 2016 (subject to Parliamentary approval). The new TFSA dollar limit will be indexed to inflation for future years.

The Canada Revenue Agency has developed several questions and answers to explain the new provisions related to the TFSA dollar limit.