TaxTips.ca - TFSA vs RRSP

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TFSA vs RRSP

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Tax-free savings accounts (TFSAs) -> TFSA vs RRSP

What is better - TFSA or RRSP?

The RRSP and TFSA have almost equivalent results when the marginal rate for RRSP contributions is the same as for RRSP withdrawals.

The RRSP is better if

	the marginal tax rate for RRSP withdrawals will be lower than the marginal tax rate when contributions are made
	you are saving for emergencies

The TFSA is better if

	the marginal rate for RRSP withdrawals will be higher than the marginal rate for contributions
	you are close to retirement age, and have little or no savings or pension. RRSP/RRIF withdrawals may cause loss of Guaranteed Income Supplement (GIS) or other benefits.
	further RRSP contributions will result in withdrawals which are high enough to cause a clawback of your Old Age Security.

The TFSA will be useful in some situations such as:

	when there is no RRSP contribution room available
	for savings goals such as a vehicle, appliances, down payment for a house, etc. The TFSA could be used instead of, or in combination with, the RRSP Home Buyer's Plan (HBP).
	seniors who are not eligible, because of age, to contribute to an RRSP

Use our TFSA vs RRSP Calculator to help you decide which type of account is better for you.

Tax tip: Most people should use RRSPs instead of TFSAs for retirement savings.

Next:

TFSA contributions

Don't over contribute!

Unused contribution room

TFSA investments - qualified, non-qualified, and prohibited

TFSA withdrawals

Asset transfer (swap) transactions

Taxes payable re TFSA

Marital breakdown

Death of the TFSA holder

Back to TFSA main page.

Revised: June 18, 2010

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