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Is it better to invest in a TFSA or an RRSP?

We all want to save money on our taxes. And making contributions to government savings plans can help. You may decide to maximize your contribution to your Registered Retirement Savings Plan (RRSP) prior to the March 1st deadline or contribute to your Tax-Free Savings Account (TFSA) or both.

Choosing between the two can be a tough decision, and while both will help you save, the best option is going to depend on your financial situation and goals. Lisa Gittens, senior tax expert from H&R Block, shares some things to consider.

Saving for the future.

Anytime you make an investment, it’s good to identify exactly what you’re saving for. Putting away money for retirement is usually on a longer timeline than, say, your child’s education fund. Income earned in both plans is allowed to accumulate tax-free. Because of the more flexible withdrawal rules, TFSAs are typically used for shorter-term goals.

Contribution limit.

Don’t forget that there is a limit to how much you can contribute to either account, which changes each year. In 2021, the TFSA contribution limit is $6,000. For RRSPs, your contribution limit is based on 18 per cent of your earned income, to a maximum of $27,830. “If you don’t contribute the full amount you’re allowed in any one year, you can carry forward any unused contribution room, based on the set limits for each year,” says Gittens. To find out your limits, you can review last year’s Notice of Assessment on the CRA website.


With a TFSA, you can withdraw funds any time you like without any tax implications because your contributions are based on after-tax income. In contrast, contributions to a RRSP account are made with pre-tax dollars, so any withdrawals would be subject to tax. Tax deductions. Contributions to TFSAs have no impact on your tax situation. However, RRSPs are tax deductible, reducing your income tax payable. “If you contribute to your RRSP before the March 1 deadline of this year, you can claim a deduction on your upcoming tax return” adds Gittens.

If you have questions about which savings method makes sense for you, speak with one of H&R Block’s local tax experts.

– News Canada

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