Skip to content

RRSP vs TFSA. Which is better for you?

The great debate: TFSA vs RRSP

With the RRSP contribution deadline just around the corner, it’s important to know about all your savings options. Today we break down which savings product to use, and when.

All about TFSAs

TFSA is great because it can be used for short-term savings, like emergency funds, as well as long-term savings like retirement. The beauty of a TFSA is that you can withdraw money from it (tax-free) at any time.

TFSAs can also hold investments. Since many capital gains made on investments within the TFSA remain tax-free, they can be useful as a long-term saving strategy. But before you deposit any money into a TFSA, you need to know your individual contribution limit because if you deposit more than you’re allowed, you’ll be taxed 1% per month on the amount you over-contributed

All about RRSPs

On the other hand, RRSPs were created with the goal of creating a comfortable retirement for you. In other words, your long-term goals. Any income (interest) you earn is usually tax-exempt as long as it remains in the registered plan. When the money within that portfolio is withdrawn, you’ll start paying tax.

RRSPs are more specific in that they are designed not only to help you save for retirement but also to help with a new home purchase or your own education. And you can use your contributions over the course of the year to reduce your taxes.


What’s better to invest in – a TFSA or RRSP?

The great thing about RRSPs and TFSAs is that the aim of both is to create a savings plan that works for you.  That being said, they’re both a little different in terms of how they benefit you.

Whether it’s for retirement or for a big purchase, it’s good to weigh which option is best for your current situation while also considering the needs of your future self. Here are a few things that differentiate the TFSA and the RRSP.

Age limits

There’s no minimum age for starting an RRSP, given you have an income. However, you can only contribute to your RRSP until the end of the year in which you turn 71.

With a TFSA, you can’t open one until you’re at least 18 years old, but there’s no maximum age limit when it comes to contributing to your TFSA.


TFSA contributions are not tax-deductible, while RRSP contributions – within limits – can be deducted to reduce your taxable income in the year that you make the contribution. The reason there’s a rush to make your RRSP contribution by the contribution deadline (this year it’s March 1) is to ensure a tax break from the previous year. TFSA contributions don’t offer the same immediate tax break.

However, an RRSP shelters your income only temporarily from the taxman. When income is withdrawn – even if it’s years down the road after being converted to an RRIF – it’ll be taxed. With a TFSA, that income remains tax-free even when you withdraw it.

Long vs short term investing

As previously mentioned, RRSPs are great for saving for long-term (retirement) because most people are in a higher income tax bracket during their working years. So an RRSP will shelter income during those high tax bracket phases of your life. Plus, it’ll allow you to pay the tax when you’re in a lower tax bracket.

A TFSA is often touted as a short-term savings account because there’s no tax consequence for withdrawing.  Just keep in mind that the true power of the TFSA comes when funds are allowed to grow tax-free within the account due to compound interest. So do your best to leave as much of those funds as you can alone for a good, long while.

Contribution limit

The maximum amount you can contribute to your TFSA in 2023 is $6,500. Any contributions that surpass your contribution room can be subject to tax; however, any unused TFSA contribution room can be carried forward to future years.

On the other hand, you’re able to make a more sizeable annual contribution to your RRSP – 18% of your previous year’s earned income (less any pension adjustments) up to the maximum contribution limit of $29,210 in 2022. Like the TFSA, your unused contribution room can be carried forward to future years. But don’t forget about the March 1, 2023 contribution deadline.

Still can’t decide between a TFSA and RRSP?

Answer a few simple questions here and we’ll help by recommending which investment is best for you. Keep in mind that both of these accounts have limits to how much you can contribute in a calendar year.

Here’s a quick snapshot of the difference between the two savings product:

Do contributions reduce your taxable income? No Yes
Are these funds subject to income tax when withdrawn? No Yes
Is interest earned on these investments tax-sheltered? Yes Yes
Can these funds be withdrawn anytime, for any reason, without being taxed? Yes No

If your mind is still flip-flopping over different acronyms, don’t worry. Money matters can confuse the best of us.  A financial advisor can walk you through all that you need to know and give you a hand picking out the right investment to get you on track for your goals.  Give us a shout. We’re here to help.



The stuff we have to say.
Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products.  Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are eligible to be insured under the Canada Deposit Insurance Corporation Act.  Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.

Let's build the right plan, together

Looking for advice on personal money management, or need an extra set of eyes to evaluate the state of your business? We'll partner with you and create a plan to help you set and achieve your goals. Book a virtual appointment with one of our advisors today.

Book an appointment

Most popular in Managing Your Money

Managing Your Money

What to do with your tax refund

A refund is basically free money, right? Once you receive your tax return, your knee-jerk reaction may be to spend it on a new spring wardrobe or hop on a…

Managing Your Money

8 money tips for university

The start of the school year is an exciting time. It means giddy reunions with your friends, welcome back parties, cracking open… brand new notebooks, lugging textbooks across campus, nuking…

Managing Your Money

How to set a budget you’ll actually use

Budgets. A word many people dread because of its association with restrictions, hassle, and headaches. Budgets are designed to make your life easier and keep you on track to reaching your…