What’s the difference between a TFSA and an RRSP?
A TFSA and an RRSP. They’re both tax-efficient savings vehicles. They’re both designed to make your life easier. And they both have four initials. However, for as much as they have in common, they also possess unique differences. Here’s a top-level look at what makes a TFSA, a TFSA. And what makes an RRSP, an RRSP.
And of course it goes without saying (but we’ll say it anyway), no matter how simple or complex your savings goals, please remember you needn’t make your financial decisions alone. Don’t hesitate to contact us at 604-877-7000, or visit your nearest branch.
| TFSA | RRSP | |
|---|---|---|
| Minimum Age for Contributing | Age 18 | None |
| Maximum Age for Contributing | None | Age 71 |
| Requirement to File a Tax Return | Yes | Yes |
| Annual Contribution Limit | $5,500* | 18% of income with a maximum annual limit determined by the government |
| Carry-forward of Unused Room | Yes | Yes |
| Penalty for Over contributions | 1% per month | 1% per month |
| Tax Deduction for Contributions | No | Yes |
| Taxation on Withdrawal | None | Taxed as Income |
| Impact of Withdrawals | Room restored | Room not restored |
| Withdrawals may affect Old Age Security Clawback | Not applicable | Yes |
| Potential for Income Splitting Opportunity | Not applicable | Yes |
| Deductibility of Interest on Borrowed Funds | None | None |
* On December 7, 2015, the Minister of Finance tabled a ways and means motion which contained provisions to return the TFSA annual contribution limit to $5,500 from $10,000. The proposed changes will take effect on January 1, 2016 (subject to Parliamentary approval). The new TFSA dollar limit will be indexed to inflation for future years.
The Canada Revenue Agency has developed several questions and answers to explain the new provisions related to the TFSA dollar limit.