RRSPs versus TFSAs?

One of the most common questions we get as Financial Advisors is whether or not one should contribute to an RRSP, TFSA or both.  The answer to that question depends on your personal situation.  They are both excellent vehicles to help you reach your financial goals.  To get a better idea of what is more appropriate for you, first we need to discuss what an RRSP and TFSA are.

RRSPs or Registered Retirement Savings Plans, allow you to get a deduction from your income when you contribute.  The money can then be invested in investments like stocks, bonds, mutual funds, and various other investments.  The money then grows tax deferred.  When you withdraw the money in retirement, you are taxed on it as income.  The idea behind this is you are likely in a much higher income tax bracket while working (therefore needing a deduction) and in a lower income tax bracket in retirement.  The 2021 RRSP room is 18% of the previous year’s income or $27,380 plus any unused contribution room from prior years.

A Tax Free Savings Account (TFSA) is an account that you can contribute money to and you don’t pay tax on the capital growth or withdrawals from the account.  Sounds pretty good, right?  The only catch is there is a limit on how much you can contribute each year.  The 2021 TFSA room is $6000 plus any unused TFSA room from previous years plus any withdrawals made from the TFSA in previous calendar years.  Similar to the RRSP, you can invest the money within the TFSA in various investments like stocks, bonds, mutual funds and more.

So, which of these should you invest in?  Well, if your income is high and you need a deduction and the money is for retirement, generally you should invest in a RRSP first and then the TFSA.  If your income is lower or you need the money sooner than retirement, a TFSA may be more appropriate.  The best way to determine which is more appropriate for you is to have a look at your complete financial picture and discuss your retirement plan with a Certified Financial Planner.

Celeste and Todd Yuzdepski
Certified Financial Planners


Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete.  It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities.  The views are those of the author, Celeste Yuzdepski, and not necessarily those of Raymond James Ltd.  Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.  Raymond James Ltd. is a Member - Canadian Investor Protection Fund.