The ultimate guide to TFSAs and RRSPs

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This article was originally published December 2018 and has been updated.

TFSA or RRSP? If that question leaves you feeling a little “OMG”, this is the article for you. We’ll break down everything you ever wanted to know about TFSAs, RRSPs, and more.

What exactly are we talking about?

Let’s make sure we’re grounded in what we’re even talking about, shall we?

Registered Retirement Savings Plan (RRSP): A Registered Retirement Savings Plan (or RRSP for short) is a savings plan that is designed to help you set aside money for retirement. Money contributed into an RRSP is tax deductible and any interest or returns it earns is not taxed—you’re only taxed when it’s time to withdraw from the plan.

Tax Free Savings Account (TFSA): A Tax Free Savings Account TFSA) is a registered plan that can be used to save toward your short, medium, or long term goals. While the money you put into your TFSA is not tax deductible, your contributions inside of the plan grow tax free, meaning any interest or returns earned are not taxed, even when they’re taken out.

The differences between RRSPs and TFSAs.

Try not to think of it as an either-or kind of situation—both TFSAs and RRSPs can have a place in your financial mix. But still, there are a few basic differences between the two:

RRSPTFSA
Annual Contribution

Your allowable RRSP contribution room for the current year is either 18 per cent of your earned income from the previous year or the maximum contribution limit for the tax year.

RRSP contribution limit for 2019 is a maximum of $26,500 plus any unused contribution room carried forward from previous years.

Contributions can be made until December 31 of the year you turn 71.
2019 contribution limit is $6,000, plus any unused contribution room from previous years. This also includes any amounts you have withdrawn in the previous calendar year.


You must be 18 (19 in certain provinces) to open a TFSA. Outside of that, there are no age restrictions on contributions.
Company Pension or Deferred Profit-Sharing Plan (DPSP)The amount you can contribute to your RRSP will be reduced by the total value of any pension amounts earned for the year.Not applicable.

Contribution Limit

The 2019 contribution limit is $26,230 or 18% of your earned income from last year, plus any unused contribution room carried forward from previous years.

Contributions can be made until December 31 of the year you turn 71.

There are lots of factors that can affect your RRSP contribution room. You can find your available contribution room on your most recent Notice of Assessment

The 2019 contribution limit is $6,000 plus any unused contribution room from previous years. This also includes any amounts you have withdrawn in the previous calendar year. You must be 18 (19 in certain provinces) to open a TFSA. There is no maximum age for contributions. Withdrawals and changing TFSA contribution limits can affect your contribution room. You can find your available contribution room on your most recent Notice of Assessment or by contacting the CRA.

Contribution Deadline

Contributions from the previous tax year can be made up to 60 days into the new calendar year.

2019 contribution deadline is March 2, 2020.

Contributions made after the deadline are eligible to be deducted from your income the following tax year.

None. Contributions to a TFSA are not tax-deductible.

New maximum contribution room (along with room created from the previous year’s withdrawals) begin on January 1 and follow the calendar year.

Over Contributing to Your PlanThough it is not recommended to over-contribute to your RRSP, there is a $2,000 lifetime allowance for overcontributions.

Any over-contributions to your TFSA will result in a penalty until they are removed or more contribution room becomes available.

Charges are 1 per cent per month of the amount you over-contributed by (e.g. if you over-contributed by $1,000, you would be charged a penalty of $10 per month).

TransfersTransfers between financial institutions or changes to your investments within your RRSP are not considered withdrawals and are therefore not subject to tax.Transfers between financial institutions or changes to your investments within your TFSA are not considered withdrawals and are not factored into your TFSA contribution room.
Carry-Forward Amounts

You can carry forward all unused contribution room.

Your available RRSP contribution room is shown on your Notice of Assessment.

You can carry forward unused contribution room from previous years.

Any withdrawals you made will be added back to your TFSA contribution room at the beginning of the following year.

Your available TFSA contribution room is shown on your Notice of Assessment.
Making Withdrawals

Outside of certain kinds of fixed-term investments, you can withdraw from your RRSP at any time. However, you will be issued a tax slip and must claim any withdrawal you make as income on your taxes.

Money withdrawn from an RRSP is subject to a withholding tax between 10–30 percent depending on the amount taken out.

The only exceptions are the Homebuyer’s Plan and the Lifelong Learning Plan, which are not subject to withholding tax. Keep in mind that there are maximum amounts that can be withdrawn and any money taken out under these programs will need to be paid back over a 10–15 year period, depending on the program.

Outside of certain kinds of fixed term investments, you can withdraw from your TFSA at any time, without tax consequences.

Any amounts withdrawn cannot be re-contributed to your TFSA until the following year.

Replacing WithdrawalsOnce you make a withdrawal from your RRSP, you will never be able to re-contribute that amount (except for the two exceptions mentioned above).

In most cases, it is not recommended to withdraw from your RRSP until you retire. If you are considering making an early withdrawal, please visit your financial expert, who can help you decide whether making a withdrawal makes sense for you.
Unlike an RRSP, amounts withdrawn from your TFSA will be added back to your TFSA contribution room at the beginning of the following calendar year.

If you have available contribution room outside of the amount you’ve withdrawn, you can continue to contribute to a TFSA in the same year you make a withdrawal.

Not sure how much to contribute to an RRSP? Check out our Retirement Savings Calculator to figure out how much you might need to save to make sure your retirement dreams can come true.

If you need more guidance around the difference between an RRSP and TFSA, contact your local credit union to connect with one of our financial experts for all the refreshingly honest advice you need.