A TFSA is a government-registered account that allows you to set aside money throughout your lifetime for your savings goals, without paying any tax on the interest or investment income earned on those savings. You can withdraw money from a TFSA tax-free at any time and spend those funds on anything — a wedding, vacation, new home, new car, etc. As the name implies, TFSA withdrawals are tax-free, however, contributions are not tax-deductible.
An RRSP is a government-registered account that allows you to save for your retirement. RRSPs are tax-deferred accounts, which means you do not pay income taxes on your contributions or the earnings they generate while they are sheltered inside the account.
You do, however, need to pay taxes later when you withdraw the money. There are limitations as to how much you can contribute each year, but there is no minimum age requirement to open an RRSP. Anyone who works and pays taxes is eligible to open an RRSP in their name and the contributions are tax-deductible. TFSA to better understand how each type of account works. The main purpose of an RRSP is to save for retirement.
A TFSA, on the other hand, can be used for anything you want. In order to open a TFSA, you need to be at least 18 years old. To open an RRSP you can be any age; the condition here is that you must be earning an income and pay taxes. In both cases, the room will be carried forward.
The difference comes when you withdraw the money. However, once you withdraw from your RRSP , you lose that contribution room and the potential for compound growth that comes with it. Both types of accounts shelter interest and investment income from tax. What is an annuity? Why invest with us? What is your risk tolerance? Live well FAQ. Please enter a valid postal code. Anyone up to age 71, 1 with earned income and a filed tax return can open an account. What are the annual contribution limits?
Currently 6, Yes Yes What are the penalties for over contributing? What are the tax advantages? Your money grows tax-free; you pay no tax on withdrawals. Your money grows tax-sheltered, with taxes deferred. Contributions are tax deductible and can be deferred for a future tax break. What are the tax disadvantages? Contributions are not tax deductible. You must pay tax on withdrawals. What are the withdrawal rules? We offer this acknowledgment as a stepping stone towards honouring the original occupants, as a testimony to the oppression faced by Indigenous peoples, and our commitment to Indigenous communities and employees of Sun Life.
Learn more about privacy and how we collect data to give you relevant content. Share this: Share this on Facebook. Share this on Twitter. Share this on Linkedin. Saving for retirement. November 09, TFSA vs.
RRSP: Which is right for you? What happens if you invest money in a group RRSP? What happens if you invest money in a TFSA? RRSPs are tax-deferred. Most advisors now offer to meet Clients virtually by video chat. Find an advisor today. Keep track of all your investments Are you a Sun Life Client? Related articles. Your email address. Need financial advice? Find an advisor How advisors help.
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