What Is the Difference Between RRSP and TFSA?
Both RRSP (Registered Retirement Savings Plan) and TFSA (Tax-Free Savings Account) are tax-advantaged accounts, but they work differently. RRSP: Contributions are tax-deductible, investments grow tax-free, withdrawals are taxed as income. TFSA: Contributions are not tax-deductible, investments grow tax-free, withdrawals are completely tax-free.
What Are the 2025 Contribution Limits?
RRSP: 18% of previous year's earned income, up to $32,490 for 2025. Unused room carries forward indefinitely. TFSA: $7,000 for 2025 (cumulative lifetime room of $95,000 if you were 18+ in 2009). Unused room carries forward.
When Should You Choose RRSP?
RRSP is typically better when: you're in a high tax bracket now and expect to be in a lower one in retirement, you want to reduce current taxable income, you're using the Home Buyers' Plan or Lifelong Learning Plan, your employer offers RRSP matching.
When Should You Choose TFSA?
TFSA is typically better when: you're in a low tax bracket now but expect higher income later, you want flexibility to withdraw without tax consequences, you're receiving government benefits that are income-tested (GIS, OAS), you've maxed out your RRSP.
Can You Have Both RRSP and TFSA?
Yes, and for many Canadians, using both is the optimal strategy. Prioritize based on your current vs. expected future tax bracket. If uncertain, TFSA offers more flexibility since withdrawals don't trigger tax or affect government benefits.