Tax Efficiency & Me: A Comparison of RRSPs & TFSAs

The federal government offers two main vehicles for Canadians to invest their money and reduce their tax burden. The Registered Retirement Savings Plan (RRSP) has been around since 1957 and is a tried and true system. The Tax-Free Savings Account (TFSA) was introduced in 2009 and has proven to be quite effective when used properly. Though the accounts do have similarities, they are also quite different in other ways.

TFSA:

Minimum Age

You must be 18 years of age or older, a Canadian resident, and have a Social Insurance Number (SIN) to open a TFSA.

Maximum Age

There is no maximum age to contribute towards a TFSA.

Contributions

There are no tax deductions for contributions to a TFSA.

The maximum annual contribution limit for 2019 is $6,000 per individual.

Unused contribution room can be carried forward indefinitely. Example: Last year’s maximum contribution was $5,500; if you only contributed $500 last year, you would be able to contribute $11,000 this year ($6,000 from this year + $5,000 unused from last year).

Withdrawals

Withdrawals are tax-free.

There is no age requirement for withdrawals.

Withdrawals are not considered taxable income and do not affect benefits such as Old Age Security (OAS).

Withdrawals may create additional contribution room.

RRSP:

Minimum Age:

There is no minimum age to open an RRSP; as long as you earned a qualified income in the previous year, are a Canadian resident, and have a SIN, you can contribute to an RRSP.

Maximum Age:

Contributions can only be made until the end of the year in which you turn 71. After that point, the RRSP is automatically rolled into a Registered Retirement Income Fund (RRIF).

Contributions:

Contributions are tax-deductible.

The maximum contribution for 2019 is 18% of the previous year’s earned income, up to a maximum of $26,500, plus any unused contribution room from previous years.

Unused contribution room can be carried forward indefinitely.

Withdrawals:

Withdrawals are taxed as income.

The plan must be rolled into a RRIF at age 71. Then, minimum withdrawal amounts must be made, based on an age-based RRIF schedule.

Withdrawals are considered taxable income and could reduce benefits such as OAS.

Withdrawals do not create additional contribution room.

If you have further questions about your investments and how best to maximize your tax efficiency, make sure to contact the Ramberran Wealth Group. Our team can ensure you’re making the most out of your savings at every turn.