TFSAs and RRSPs: Key Benefits and Differences

With a new year upon us and tax season around the corner, we would like to send a friendly reminder about two key tax savings investment opportunities: Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). For your reference, we have included a quick comparison on the key benefits and differences between RRSPs and TFSAs.

Feature	Tax-Free Savings Account (TFSA)
Minimum age	To open a TFSA you must: Be 18 years of age or older. Have reached the age of majority in the province where you set up the account. Be a Canadian resident.	There is no minimum age to open an RRSP, however you must have earned qualified income in the previous year to contribute and: Be a Canadian resident. Have a Social Insurance Number (SIN).
Maximum age	As long as you meet the above requirements, there is no maximum age to contribute.	Contributions can be made until the end of the year in which you turn 71. After that point, you must convert your RRSP into a Registered Retirement Income Fund (RRIF)or an annuity.
Contributions	Contributions are NOT tax deductible. Annual contribution dollar limit is determined by the Canadian Revenue Agency (CRA). The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500. Unused contribution room can be carried forward indefinitely.	Contributions are tax deductible. Unused contribution room can be carried forward until the end of the year in which you turn 71, as above.
Withdrawals	Withdrawals are tax free. Withdrawals in one year will increase contribution room by the same amount in the following year.	Withdrawals are taxed as income. Withdrawals do not create additional contribution room.
Deadlines	There is no deadline for contributions to a TFSA, as the unused contribution room is carried forward into the next year. However, a withdrawal in any year does not increase the TFSA room until the following calendar year.	In order to receive a deduction on your tax return, contributions must be made.

Tax-Free Savings Account (TFSA)	Registered Retirement Savings Plan (RRSP)
Minimum age To open a TFSA you must: Be 18 years of age or older. Have reached the age of majority in the province where you set up the account. Be a Canadian resident.		Minimum age There is no minimum age to open an RRSP, however you must have earned qualified income in the previous year to contribute and: Be a Canadian resident. Have a Social Insurance Number (SIN).
Maximum age As long as you meet the above requirements, there is no maximum age to contribute.		Maximum age Contributions can be made until the end of the year in which you turn 71. After that point, you must convert your RRSP into a Registered Retirement Income Fund (RRIF)or an annuity.
Contributions Contributions are NOT tax deductible. Annual contribution dollar limit is determined by the Canadian Revenue Agency (CRA). The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500. Unused contribution room can be carried forward indefinitely.		Contributions Contributions are tax deductible. Unused contribution room can be carried forward until the end of the year in which you turn 71, as above.
Withdrawals Withdrawals are tax free. Withdrawals in one year will increase contribution room by the same amount in the following year.		Withdrawals Withdrawals are taxed as income. Withdrawals do not create additional contribution room.
Deadlines There is no deadline for contributions to a TFSA, as the unused contribution room is carried forward into the next year. However, a withdrawal in any year does not increase the TFSA room until the following calendar year.		Deadlines In order to receive a deduction on your tax return, contributions must be made.

The above chart provides highlights of TFSAs and RRSPs. It is for information purposes only and is not intended to be investment or tax advice. Investors should consult a professional advisor for specific investment and tax advice.

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