TFSA vs RRSP: Head to Head Comparison – Updated 2017

TFSA vs RRSPThere has been a lot of talk about which one is better, the TFSA vs RRSP in both the PF blogosphere and the media.  Both are great savings and investing tools for us Canadians, but there are important differences between and choosing correctly between the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) can save you thousands of dollars in the long-term.

In an ideal world, one would max out both their RRSP and the TFSA.  In the real world though, life happensIt is oftentimes very difficult to be able to scrounge up the money (without having to sell a kidney on the black market) to be able to max out both if your tax-advantaged accounts.  (Which is why I recommend using a pre-authorized contribution plan to your discount brokerage account or setting up a pre-authorized “set it and forget it” investment solution with one of Canada's robo advisors to pay yourself first!)

RRSP Vs. TFSA – Comparison Starts Here

In my opinion, the RRSP and the TFSA are like siblings. Not twins mind you – but siblings with different personalities. In some ways they are almost mirror opposites and the inverse of each other.  Both options share the trait that they allow you to shelter your investments from taxation – allowing your money to grow tax free using a wide variety of investment options.  Each have their time and place, and are fantastic tools in their own way, but as we all know, one probably deserves more of your attention than the other (just like parents who really do have a preference of one sibling over the other, but they don’t say it aloud) *uh oh, is my middle child syndrome coming out in my post?!  Sorry about that*.

So let’s talk about the RRSP first (the older sibling):

The Basic Lowdown on the RRSP:

TFSA vs RRSP
The RRSP was introduced in 1957 (yeah, it’s the really old sibling)

  • The RRSP can hold a number of things (including GIC’s, stocks, mutual funds, and bonds); it’s like a basket of investments sheltered from tax.
  • Contributing to the RRSP is done with PRE-TAX income (the tax refund you get is your pre-tax money, but given to back to you at a later date).
  • You will have to pay tax eventually when you take money out – it’s a tax-deferral program. The hope is that when you take money out of the RRSP, you’ll be at a lower income than when you put money in (aka retired), so the average tax rate that you pay on the savings/investments will be lower.
  • You are supposed to contribute to it to reap the tax deductions when you’re at a higher tax bracket, and take it out when you are in a lower tax bracket.
  • Your maximum RRSP contribution is calculated by calculating 18% of your gross income or $25,370 (as of 2016) – whichever is lower. Any unused contribution room can be carried forward to the next year.
  • There are two options where you are allowed to borrow money from your own RRSP (but it has to be paid back later):
    • Home Buyers Plan ($25,000 max)
    • Lifelong Learning Plan ($10,000 per year, $20,000 total max)

The TFSA Lowdown:

TFSA vs RRSP

  • People could first contribute to a TFSA in 2009 (this is the new toddler sibling, becoming ever more popular).
  • Each year after the age of 18, you can contribute to $5,500 per year to a TFSA. (It is indexed to general inflation after briefly being raised to $10,000 per year – with no indexing – under the Federal Conservative government in 2015.)
  • Currently in 2016, if you haven’t opened a TFSA before, you can contribute up to $46,500!
  • Like an RRSP, you can hold a number of things within the TFSA. The TFSA is like a basket that you put investments into. (GIC’s, High Interest Savings Accounts, stocks, bonds etc.)
  • Money contributed to TFSAs is done with AFTER TAX income – meaning that you don’t get a tax refund because the money you put it was done after you paid taxes on it.
  • You can withdraw money any time – tax free!
  • If you withdraw money, you have to be careful about making contributions back into your TFSA within the same year. It’s kind of a weird rule, but the TFSA only gives you back your contribution room during the following calendar year. For example, if you have maxed out your TFSA contribution, then you withdraw $2,000, you can’t put $2,000 back into your account later in the year unless you want to pay a penalty. Instead, in 2017 you would have $7,000 worth of contribution room available.
  • Many people have been using the TFSA as an emergency fund, but with the increasing amount allowed ($46,500) I think people should be looking at other options for their TFSA. If you use the TFSA to invest in long-term equities, you can shelter a substantial amount of investment earnings in your TFSA. Would you rather shelter the 1% you are getting in a high interest savings account, or the 7-8% a balanced index ETF portfolio could snag you?

RRSP = pre-tax dollars invested, taxed when you withdraw
TFSA = after tax dollars invested, no tax when you withdraw.

Now that we’ve introduced the siblings, let’s look at their good and bad traits.

PROS of the RRSP:

      • It feels awesome to get that tax return. Especially when you use that tax return to supercharge your RRSP contributions for the following year.
      • RRSPs are great in that you are sort of forced not to withdraw from it (other than for school or for a first time home purchase) because of the tax hit you will take if you do so. We’re all human, and if we know that money is accessible then it’s hard to keep sticky fingers away from the cookie jar! Consequently, using an RRSP is a great way to develop disciplined investing habits.
      • It’s an especially good tool for those with high incomes who are taxed to the nines. It can feel good to get some of your tax dollars back and then defer your investment returns until you retire to a lower tax bracket.
      • RRSPs are perfect for holding stocks and ETFs from the USA. This is because of a tax treaty that Canada and the USA have when it comes to taxation of dividends.  It can get kind of complicated (if you want the in-depth explanation, here’s a good place to start), but suffice it to say that RRSPs are a great place to park US-based equities.
      • You can have your money managed through robo adviso firms like Wealthsimple:

RRSP vs TFSA

CONS of the RRSP:

      • It’s a tax deferral… so if you’re fortunate to have a great pension, you will be taxed to the nines when you are in retirement, especially when you are forced to take your RRSP out when you turn 71 via Registered Retirement Income Fund (RRIF). Some people end up paying an even higher tax rate than they would have during their early working years.
      • You can’t take money out penalty-free except for buying your first home or under the Lifelong Learning Plan.
      • If you aren’t making much money that year (e.g. if you are a student) there isn’t too much point in taking a deduction and chasing a big tax return via an RRSP contribution. You already aren’t taxed very highly (if at all), so you won’t get much of your taxes paid back.  Better to use a TFSA here.
      • If you don’t re-invest your tax refund (woo hoo Caribbean trip!), then you lose out on the pre-tax advantages. Most Canadians gloss over this little detail.
Now let’s look at the flashy younger sibling, the TFSA

PROS of the TFSA

      • It’s a very flexible savings tool that allows folks to take money in and out of a tax-sheltered account easily and without penalty.
      • TFSA investments have already been taxed, so unlike your RRSP investments, you can safely determine exactly how much money you can take out when you retire. RRSP withdrawals of course are subject to whatever new tax rate comes out.
      • When you retire and started pulling money out of your RRSP and TFSA accounts, as well as collecting government payments such as Old Age Security (OAS), the government takes your RRSP withdrawals into consideration when “clawing back” your OAS – but this is not the case when withdrawing from TFSA.
      • Just like the RRSP, your investments can compound inside your TFSA tax-free (this can make a HUGE difference if you start at a young enough age).
      • You can have your money managed through robo adviso firms like Wealthsimple:

RRSP vs TFSA CONS of the TFSA

      • The problem is that it is being heavily marketed as a Tax-Free High Interest Savings Account by all the big banks. You get 2% interest if you’re lucky.  This misinformation means that people are actually severely misusing their TFSA.  I’m in favour of renaming the entire package to a Tax-Free Investing Account.  This would give people a much more accurate view of the ideal way to use the tax-sheltered account.
      • The majority of Canadians still earn significantly more during their working years than they do in retirement. This usually tips the balance in favour of RRSP contributions.
      • Because it’s so easy to take money out of a flexible account such as the TFSA, human nature might tempt you into making decisions that are not conducive to building long-term wealth.
      • Some employers only offer pension-match contributions for RRSP contributions. If this is the case – then ignore everything else take the free money your employer is offering!
      • You can't use an RRSP investment loan (see our Borrowell review for more info) to supercharge your TFSA account (because the tax man won't send you a refund for a TFSA contribution).

Decision-Making Flowchart

There is more to choosing where to place your hard earned savings than tax considerations.  Here’s a great tool that we borrowed from a friend.  Don’t be afraid to ask questions in the comment section below!

Young and Thrifty's Take:

The short answer when it comes to the TFSA vs RRSP debate is: “Yes… DO IT.”  Truthfully, the real danger here is paralysis by analysis.  Picking the “wrong” one (the better term might be “slightly less efficient one”) is still much much better than not saving at all!

RRSP vs TFSA

Personally, I am trying to contribute to both my TFSA and RRSP Questrade accounts in order to take advantage of each’s unique characteristics.  I don’t have very much money that I am allowed to contribute towards an RRSP anyway because of the Pension Adjustment, so a little tax refund is always nice to offset some things like capital gains, interest income, etc., otherwise I might be paying more taxes when I’ve already paid so much in taxes from my primary source of income.  Being that I’m in a relatively high income tax bracket right now, some RRSP contributions make sense; however, I am one of the very fortunate souls that will also have a nice pension to depend on when I retire (assuming I don’t get fired!) so going all-in on RRSP contributions isn’t my favoured approach.

I would recommend that for those who are not paying a relatively high level of taxation it is better to contribute to a TFSA. 

The TFSA is better for short term goals (within 1-10 years), like saving for a down payment, saving for a car, saving for that future baby, or saving for that big trip.  As we discussed before however, the TFSA is actually best used for long-term investing.  It is like the Swiss Army Knife of registered accounts.

RRSP vs TFSA

Of course, everyone is different and would have a different reason for having one or the other as a better option for their situation.  It’s best to sit down and really think about the merits of each option to figure out which one you want to allocate the majority of your hard earned money to.

2017 RRSP and TFSA Update

Before last year's federal election there was considerable noise about changing the TFSA and RRSP – but with a Liberal win the registered plans remain very similar.  Our former Prime Minister had promised to raise the amount allowed under the Home Buyers Plan to rise to $35,000 and decided to put the TFSA annual contribution up to $10,000.  Following the election, the $35K home buyers plan option was taken off the table due to concerns about rapidly rising housing prices (personally I think saving for your downpayment using an high interest savings account from an online bank within your RRSP is still the most efficient way to get into a house ASAP).  Canadians got to enjoy one year of the $10,000 TFSA before the rules revered back to a $5,500 annual contribution limit that will be indexed to inflation.  It is good to note though that Canadians will get access to that $10,000 limit whenever they have the ability to save in life as the annual contribution room in both the Tax Free Savings Account and Registered Retirement Savings Plan accumulates and is not a “use or lose it” proposition.

Another 2017 update the fact you can run your RRSP or TFSA account via robo advisor , one of the most cost effective ways to manage your money nowadays. We particularly like Wealthsimple's offer : Young and Thrifty readers to get $10,000 of their funds managed for free.

OR

Readers, what do you think? What are your thoughts between TFSA vs RRSP?  Are you planning to contribute to both?  If you had to pick one, which would you choose?

134 Comments

  1. Sustainable PF on February 7, 2011 at 8:19 am

    TFSA – we have pensions as well. Though we WILL max those out pretty soon leaving us with the option of non registered accts or RRSP at which time we’ll gladly invest in the RRSP as our salaries are starting to get to a point where our tax rate is going up too often.



  2. BeatingTheIndex on February 7, 2011 at 1:59 pm

    TFSA anytime over RRSPs. Simply because in the end there’s no paperwork or taxes related to your activity (wins, losses, withdrawals, etc)



  3. Jaymus (RealizedReturns) on February 7, 2011 at 5:23 pm

    I can’t think of many situations where contributing to an RRSP is favorable to a TFSA.

    The trouble I have with RRSPs is that I am speculating on what my tax rate might be 30-40 years from now. I haven’t a clue what my tax rate will be.. as such, I don’t feel compelled to try to max
    it out.

    For that matter, I actually hope to be paying the same or more taxes in my old age – that would mean I’ve got some sustained income.. so deferring the taxes could be a big mistake!



  4. My Own Advisor on February 7, 2011 at 5:45 pm

    Good post Y&T.

    I do disagree with one thing: “You can



  5. Etienne on February 7, 2011 at 6:37 pm

    TFSA 100% before RRSP.
    RRSP you have to take funds out even if you have other revenue sources.. thus putting you in high tax brackets. Taxes are not likely to go down with the economy.
    I would def. max out TFSA before putting money in RRSP.
    TFSA your gains are not taxable, ever!



  6. Jim Yih on February 7, 2011 at 8:37 pm

    Thanks for the mention. I really appreciate it. I like the siblings analogy. I’m not sure why their is such a surge of anti-RRSPers out there this year.

    As you said, they are both good but for really different reasons. People who overgeneralize the tax consequences at the back end may not be cutting the RRSP short.

    These accounts are not mutually exclusive. you do not have to buy one without the other. You can actually do both.

    Cheers!
    Jim



  7. SavingMentor on February 8, 2011 at 4:34 am

    I agree, both can be a good option because you can withdraw from your TFSA in retirement to keep your retirement income low and also withdraw a little bit from your RRSP at a low marginal tax rate. That’s pretty win-win.

    If you have a pension that will increase your income substantially every year, then TFSA would be the clear winner.



  8. Fox on February 8, 2011 at 6:53 am

    Great post YT!
    Personally they both have their advantages. I borrowed for an RRSP yrs ago, paid it off and used the RRSP as my HBP, for my first home about two yrs ago.

    I was thinking of getting into an TFSA. I just don’t find it feasable at the moment to invest, as I am eliminating debt. I may convernt some savings and bring them over to the TFSA.

    Eitherway great post, well explained. Look for the feature in “Fox’s Weekend Blog Love”

    Fox



  9. Invest It Wisely on February 8, 2011 at 8:52 am

    Definitely both for me. Many places offer an RRSP match which means you are losing money if you don’t at least take advantage of the match.



  10. Andy on February 8, 2011 at 11:31 am

    My strategy this year is to max out RRSP contributions as much as possible and take the tax refunds and put it in TFSA. My reasoning is that who knows what the tax regime will be like in 30 years when I retire. Bear in mind, our country’s finance needs to survive the boomer seniors first. I suspect there won’t be enough money and they’ll encourage seniors to use up their nest egg by taxing it less. Lowering taxes on seniors will be popular and given they of all the various demographic groups is the one most likely to vote, makes political sense as well.

    I contribute to RRSP to get my money back from the gov now and put it somewhere where they can’t get at it, unless they change TFSA rules. Basically, the government is betting on the uncertain future and lending you the money. Might as well take it.



  11. Balance Junkie on February 8, 2011 at 1:31 pm

    Wow. You really covered a lot of ground here. Nice job. I’ve written a lot about the benefits of TFSAs and I do think most Canadians aren’t using them enough yet. But I would never say that they are better or worse than RRSPs. It really depends on your personal situation.

    We will continue to use both, but will probably top up our TFSAs first and then contribute to RRSPs. That’s because we already have a decent amount in RRSPs and we want to allow our TFSA savings to catch up a little. (Thanks for the mention! :))



  12. Money Rabbit on February 8, 2011 at 1:09 pm

    I love both my RRSP and TFSA. My TFSA is used for my investments and its perfect, since I don’t have to pay taxes on any of the growth and I bought my stocks while I was a student, so I wasn’t taxed on the money I saved to buy into the market. But I love the RRSP tax refund, and I like the fact that it’s set aside specifically for my retirement, whereas my TFSA is a little more flexible with what I use the money for.

    I also won’t have a very big pension (even though I’m employed full time, I don’t really work “for” a company, I work for two individuals, and so I’m not going to have a large pension to fall back on) so contributing to my RRSP helps me sleep at night.



  13. Patricia on February 9, 2011 at 5:11 am

    Don’t forget that you can defer claiming the RRSP contribution until a higher earning year.



  14. Nicole on February 9, 2011 at 10:59 pm

    You forgot the major point of RRSPs for young folks:
    Your allowable contribution limit for RRSPs will ROLL OVER from year to year. So you don’t have to contribute right away but it is worth doing so once you’ve settled into more permanent work and then you can make much more significant contributions.

    and Andy wrote:

    “My strategy this year is to max out RRSP contributions as much as possible and take the tax refunds and put it in TFSA”

    This is SMART!



  15. young on February 10, 2011 at 7:04 pm

    @Sustainable PF- Hey, that’s a nice problem to have!! 🙂 It’s like a bittersweet accomplishment, heading to the next tax bracket.



  16. young on February 10, 2011 at 7:14 pm

    @My Own Advisor- Oops- yes, thanks for the clarification. I was being too “absolute” with the RRSP- yes you can cash them out anytime but you will pay major tax for it- agree that its not preferable, but it is an option. Thanks for your additional tips (re: spousal RRSPs… I haven’t gotten a chance to look closely at that yet since I’m not a spouse yet 🙂 )



  17. young on February 10, 2011 at 7:16 pm

    @Jim Yih- You’re welcome Jim. Agree- there’s been a lot of RRSP backlash, preferable to max out on both, if possible.



  18. young on February 10, 2011 at 7:17 pm

    @SavingMentor- Definitely win-win, but there would have to be a clear distinction from which funds are for retirement in the TFSA, because it’s just way too easy to dip into the cookie jar when things are so easily accessible.



  19. young on February 10, 2011 at 7:18 pm

    @Fox- Thanks Fox (for the love). I would definitely get into a TFSA (especially since we’re both young). You could definitely convert some savings into a TFSA- because at the non-registered savings rate, you are basically paying for inflation AND you get taxed on the interest income.



  20. young on February 10, 2011 at 7:19 pm

    @Invest It Wisely- yes, thanks for mentioning the RRSP match (those good ol’ employers!) That is definitely a win-win scenario.



  21. young on February 11, 2011 at 12:43 am

    @Andy- Excellent strategy. That’s what I plan to do too. Then it’s like a win-win-win situation! Good point that the tax regime will likely look very different 30 years down the road.



  22. young on February 11, 2011 at 12:44 am

    @Money Rabbit- Sounds like a perfect game plan (save the money while you’re a student because it isn’t taxed and put it into a TFSA)! I agree that both are good, for different reasons, and you can’t really have one over the other. They are both great ways to save for retirement or other big life purchases (e.g. down payment, wedding etc.). Good tax shelters to keep the tax man away (for the time being, anyway!).



  23. young on February 11, 2011 at 12:45 am

    @Balance Junkie- Thanks for visiting! 🙂 You could do what Andy suggests, which is to use your RRSP refund (or tax refund if you get one) to contribute to your TFSA. I’m pretty sure I’m going to be doing that this year.



  24. young on February 11, 2011 at 12:46 am

    @Patricia- yes indeed! Thanks for pointing that out 🙂



  25. Merlin on February 15, 2011 at 1:16 pm

    Ummm… I think people are highly neglecting the benefit of an RRSP.

    The money is not taxed going in… it is tax deferred…. yes you do pay tax on the income gained but only on the back end when you take it out. It not only accumulates tax free but YOU DON’T PAY TAX GOING IN.

    On the flip side…. with the TFSA you are dealing with after tax income…. So of course it is better that the tax income will never be taxed but you have to account for the fact that you are able to invest less because it is after tax dollars.

    If the goal is to save for retirement it seems always better to invest in the RRSP first as you are essentially able to invest more because you pay less tax.

    Imagine you are trying to figure out what to do with 8,000 ish dollars.

    One option is to pay the tax upfront and then put the 5000 dollars into a TFSA.

    The other option is to put the whole 8,000 into an RRSP (assuming you have room)…. if you have a cash flow issue you can borrow to put more in and pay off with the return.

    The fact that you can essentially invest more (because you are allowed to invest the taxes) means that for retirement purposes you will almost always be better in a RRSP. Yes it is true you have to pay tax on the capital and the interest but here’s the thing – in the TFSA youalready paid the tax on the principle because it is after tax dollars you are investing….



  26. young on February 15, 2011 at 10:45 pm

    @Merlin- Thanks so much for your comment. You have detailed the inverse relationship of the RRSP and the TFSA. It’s best to put money away in both, but if not possible, everyone has a different preference. I suppose it also is important to consider what tax bracket you are in too 🙂



  27. Sarah on July 21, 2011 at 10:50 am

    Hello!
    I just found your site.. well, I am not sure how I got here.
    Love it though.. am learning lots.

    My husband and I are both 25 and living in Northern BC.

    We often have this debate alot.. RRSP vs. TFSA. I’m all for TFSA because I am terrified we are going to be in a high tax bracket when we retire. Hubby is an RCMP officer so will have a good pension. He contributes more to his RRSP because he loves the tax return (sometimes I think he forgets that we’ll be paying all that tax later!) and puts every cent we get back onto our mortgage.

    I on the other hand, will not have the a great pension.. so RRSP seems like a better option for me.

    Anyways, my mind spins sometimes thinking about what to do, what is best… etc etc.. Hubby just tells me that atleast we are saving something. Some of our friends don’t even know what an RRSP is.. :S



  28. young on July 21, 2011 at 10:49 pm

    @Sarah- I’m so happy that you enjoy my blog! Personally, I think a TFSA is where its at for us (especially us with pensions) because who knows when the rules might change? The RRSP is good though if you plan to use it for the HBP (Home Buyers Plan) or LLP (Lifelong learning plan). I think you should be very very proud that you contribute to an RRSP/ TFSA. I know many many many people who are my age (and even in their 30’s) are are not contributing to either.



  29. Ronde on August 4, 2011 at 12:55 pm

    Sarah said, “I on the other hand, will not have the a great pension.. so RRSP seems like a better option for me.”

    I’m in the same boat as you and your and your husband. I have a great pension, my wife has no pension. I take out Spousal RRSPs–I get to deduct the return and use it on the mortgage, SHE gets to withdraw the RRSP income when we retire and not be taxed because her income will be minimal. For people like us, RRSPs win over TFSAs all the time.



  30. young on August 6, 2011 at 2:01 pm

    @Ronde- Very good point and analysis on the different scenarios and application of the RRSP for people with pensions and their spouses without.



  31. Tom Eaton on September 8, 2011 at 10:27 am

    @ young, thank you for explaining the difference between the two RRSPs & TFSAs.I think the way you and you wife are going about doing it is really smart, I might look into it for my self and my wife.

    Tom Eaton
    Web Developer www.bulbamerica.com
    Philips Bulbs



  32. young on September 8, 2011 at 2:17 pm

    @Tom Eaton- Thanks! Except I don’t have a wife lol….



  33. Money in Training on January 14, 2012 at 1:22 pm

    Great post! Like some of the commenters above me, I have no idea what tax bracket I will be in when I retire. If I had to guess at this stage, I’d say I would be in a lower tax bracket, which would mean I should prefer socking money away in my RRSP before the TFSA.

    However, I have read a few articles about METRs and how they can change your situation upon retirement. Currently, I don’t really understand the concept. Therefore, I have just started contributing to a TFSA (Questrade’s TFTA) since I already have 4% of each pay cheque going into my RRSP through my employer.

    If nothing else, having a decent chunk of change in both the RRSP and TFSA will afford me more flexibility when I retire.



  34. young on January 15, 2012 at 8:58 am

    @Money in Training- Does your employer match the 4% that you put in your RRSP? You sound like you have a great plan ahead. I agree, the METR’s can be completely unknown in the future! I personally like the idea of both RRSP and TFSA as well, though I will probably focus more on my TFSA (provided it still exists in 20 years HA!) because of my defined benefit pension plan.



  35. Money in Training on January 15, 2012 at 12:14 pm

    Y&T:

    I lied. They actually match upto 3% of every pay cheque. So, essentially 6% of every pay is going towards my RRSP. They also offer a registered and non-registered employee stock purchase plan. They match 50% of your contribution into the ESPP upto 4% of your salary across both (the NR-ESPP and R-ESPP) plans.

    I have chosen to sock away 3% of every pay into the RSPP and 4% of every pay into the R-ESPP so as to get the maximum possible match from my employer. Why turn down a guaranteed 100% and 50% ROI?



  36. young on January 16, 2012 at 9:47 pm

    @Money In Training- That’s excellent! I agree. I think it’s funny why people would turn down employee matching. It’s free money!



  37. Robert on February 11, 2012 at 6:46 am

    YoungandThrifty, I have to tell you the truth. Anyone who has a pension plan at work and contributes to an RRSP is “COOKOO”. Let me explain. In Canada we have a progressive tax system with increasing rates of taxation as your income reaches the predetermined thresholds. Now let’s say that your pension is going to pay you 70% of preretirement income. If you were earning $80K then pension would we $56K. Now here comes the terrible part.
    At a taxable income of $56K you would have a marginal tax rate of 31% at todays tax rates. Then you start to receive income from your RRIF to the tune of $16K. You now have a total of $68K retirement income. Now your marginal tax rate is 33% and you have paid taxes on the RRIF income to the tune of $5000 When you deposited this $16K to your RRSP you received a tax deduction of $5600 if you were at a marginal tax rate of 35% So low and behold, for a $16K RRSP contribution your only gain in retirement was $600. The Canada Revenue Agency always gets their tax dollars. There are strategies that are OK, and there are strategies that are AMAZING. Would you take your Rolls Royce to Canadian Tire for and oil change?



  38. canadiancentsiq on February 11, 2012 at 7:27 am

    Money in Training, For nearly 85% of Canadians, RRSP’s as a savings vehicle are the least efficient way to save for retirement. I say this because when you receive the income in retirement, you pay taxes on the money you originally deposited and all of the capital gains and dividends it earned. As an example, if your portfolio of investments earned $50K in Capital Gains and $25K in Dividends all would be taxed as employment income through the RRIF. If your tax rate was 30% in retirement you would pay in taxes to CRA $22.5K. If you had the investments in a “Cash Account” you would receive preferential tax rates of 15% on Capital Gains and 13% on Dividends. So all said and done you would pay a total of $10.7K in taxes. This means you got to keep an additional $11.8K in your pocket



  39. canadiancentsiq on February 11, 2012 at 7:41 am

    It sounds to me like you need a complete Modern Canadian Personal Finance overhaul.
    You have been indoctrinated into a belief system that is old and inefficient. The government and the banks only want one thing from you, for the banks its to keep you in debt for as long as possible, and the government wants your taxes.
    You have the illusion of having savings while paying interest on debt. If you are willing to learn with an open mind, I will show you how you can pay off your mortgage and be debt free in 1/2 the time. You don’t need to get a second job, and you don’t need to stop having fun. The system I employ comes from Australia. It has been around for over 50 years and its the only way people bank. Let me know if this sounds like a better way.



  40. Brian Poncelet, CFP on February 14, 2012 at 4:56 am

    Hi Young,

    Robert has a point about the RRSP. No your not COOKOO!

    With RRSPs you can contribute later.

    Since 2005 the government has been looking at ways to clawback money like the OAS. We will see more changes to OAS. RRSPs really hurt if one has saved too much, later when you pay taxes.

    How about something different?

    At looking at the end game? Retirement? If you are lucky enough to have a full pension you have choices do you want more money now (at retirement) and less survivor money to go to your partner? With Life insurance you have choices? Can one get 7 or 8% guaranteed at retirement?

    Life insurance (permanent) has a number of things going for it.

    If you are disabled does the RRSP or TFSA continue to be funded to 60 or 65 every year?
    Can you get all your money back plus interest?
    Is there a death benefit?
    Can you borrow from it and be credited for all your money?
    Is there creditor protection?
    Can you spend and enjoy your money with less risk and pay less taxes plus have more protection?

    The problem is many people have no way of testing different models factoring taxes, inflation, markets etc. The current financial software(out in the market) really looks at rates of return, with out looking at other factors.

    If you are interested I can do a short webinar on why one would want (not need) permanent life insurance as part of a retirement plan. Assuming they have a partner, kids, etc.

    cheers,

    Brian



  41. young on February 20, 2012 at 1:43 am

    @CCIQ- I know in Australia they have something similar to a tax free savings account. My aunt and uncle who are retired are enjoying something from their.. is it called a “super”?? Once I finish my HBP I am going to go to TFSA all the way.



  42. canadiancentsiq on February 22, 2012 at 7:30 am

    Dear young, I was referring to the way that Australians conduct their day to day banking. They have a solution that combines their chequeing account, mortgage, line of credit, credit card, and savings all within one product. This product allows for the mortgage to be paid off in half the time, saving the homeowner tens of thousands of $$$’s in interest expense. The mortgage portion is based on simple interest not compound interest that which Canadian banks use. I’m here to tell you that it has been here in Canada for the past 10 years. It is gaining momentum and the big banks are loosing clients to it. How would you like to tell your bank, “The Gravy Train Is Over” I have much more information to share.



  43. young on February 23, 2012 at 11:41 pm

    @CCIQ- That sounds like the Manulife One to me.. do they still have that around?



  44. Kevin on January 26, 2013 at 11:46 pm

    RRSP is pre tax.
    TFSA is post tax..

    This means depending on ur tax bracket RRSP allows u to invest 30% more in comparison to TFSA.

    5000 in TFSA becomes 13,266.49 in 20 years at 5% compounding annually
    8000 in RRSP becomes 21,226.38 in 20 years at 5% compounding annually

    Lets say tax rate increases to 35% when u retire (highly unlikely due to lower income during retirement but i will take ur argument on this one) 65% of 21,226.3 comes to 13797. So u are up ~500$ using RRSP.

    Compound that by year on year investment and it could be significant amount



  45. Teacher Man on January 27, 2013 at 12:19 am

    Yup, that’s pretty much what the post says Kevin…



  46. Bryan Jaskolka on March 29, 2013 at 2:46 pm

    Wow, what an extremely thorough and comprehensive post regarding the differences between these two savings vehicles, as well as what makes them good/not so good for those trying to choose between them. So often you find so much general information regarding these two, but no real in-depth, side by side comparison such as this. Thanks for posting!



  47. Don on May 6, 2013 at 10:14 pm

    Dear Young, saw your site listed in National Post, Six of the coolest money websites. TFSA vs. RRSP post is ongoing family debate, so read all previous posts. This may be late but for my money TFSA’s all the way in to-days world of slow growth and low interest rates stretching till ?
    If employed with no company pension a TFSA with no taxable income on retirement might even allow person to receive GIS if only taxable income is CPP and OAS. A trading TFSA account costs $50.00 yearly, no fee usually after $25,000.00. Good dividend paying stocks earning 4% and up add to return as well as hopeful increase in share price. All non-taxable in acc. $29.00 trading fee mentioned is only problem if engaged in frequent trading.
    RRSP trading acc. usually costs $100.00 yearly, some no fee after 25K, some not until 100K. Trades same cost & returns as per TFSA BUT all taxable income whether withdrawn early or after retirement.
    If you are going to be receiving a company/government pension TFSA would also be my way to go. IE: RCMP pension (indexed) increasing ever year even if slightly on top of CPP and OAS means even higher tax bracket to pay with RRSP returns. Wife with little or no income, priceless. If money contributed to his and her TFSA’s builds up till retirement, means cash windfall there to be employed however tax free. Plus with both receiving CPP and OAS and splitting his pension with no other taxable income ie: RRSPs, more tax savings.
    Point for RRSPs, they can also be split with spouse, but point lost if both have them.
    Family debate has both situations and unless government changes TFSA rules in future, looks like a good retirement tool to use.



  48. Teacher Man on May 7, 2013 at 7:28 am

    Hey Don,

    We’re always happy when the mainstream press shines a little light in our direction!

    First off, I myself am very upset by the fact I can’t use a TFSA right now – or rather the benefits don’t outweigh the drawbacks. As an American/Canadian citizen that has to file taxes in both countries the TFSA is a nightmare.

    Now when it comes to factoring in GIS into the debate I’m not sure I would depend on our current retirement structure staying the way it is. Also, if you have that little income in retirement, the low tax rate you’d pay on RRSP withdrawals shouldn’t hurt you too bad, and should be down substantially from what it was in your working years?

    The numbers in this article are now a little outdated. Get rid of all of those fees and go to a discount brokerage where your TFSA and RRSP are free, and where you can get your ETFs commission-free! Check out our recent Questrade updates for more info.

    I completely agree that if you are getting a pension the TFSA looks a lot better, especially considering the move to raise tax rates on upper tier earners going forward in the Western World – as a teacher that can’t use a TFSA this makes me even more angry!

    Check out our free ETF investing guide and see what you think!



  49. The Commission-Free ETF Revolution on September 18, 2013 at 2:44 am

    […] (by my standards at least).



  50. Is the Smith Manoeuvre Risky? on October 15, 2013 at 12:18 pm

    […] TFSA vs RRSP: Head to Head Comparison […]



  51. […] TFSA vs RRSP: Head to Head Comparison […]



  52. MMFBT 017 - Case Study: Sandra the Mature Student on February 23, 2014 at 8:19 pm

    […] For more info –



  53. Bodrey on February 28, 2014 at 6:38 pm

    If you’re earning a large income then it makes sense to invest in RRSPs to offset the higher rate of income taxes you’ll pay. IMO, that, and the fact that you can contribute much more to an RRSP than a TFSA (currently, anyway) are the only reasons to invest in an RRSP. Otherwise, a TFSA is the clear winner. For example, let’s say for argument’s sake you invest $5K in a TFSA and in 35 years it’s worth $30K. The initial $5k investment was made with after tax income but you won’t pay a cent in income taxes on the $25K ROI. Under the same scenario with an RRSP you’d have to pay income tax on every penny of that $25K. In addition (depending on how much you withdraw for retirement) if you’re eligible for the GIS it could be clawed back at an effective marginal tax rate of 50%! That’s brutal. And, whose to say in 20-30 years’ time (if not sooner) the government decides to apply the same rule to OAS? Due to demographics going forward, there will be fewer and fewer workers to pay CCP premiums for an ever-increasing number of retirees. So, in the long term the CPP is not sustainable unless taxes rise markedly or benefits are cut back. People need to take charge of their own retirement destinies and put as much away as they possibly can.



  54. Kyle on February 28, 2014 at 9:40 pm

    I completely agree on your idea surrounding government clawbacks Bodrey. I think that scenario grows increasingly likely every year and why I too favour the TFSA. Thanks for the input!



  55. […] Young and Thrifty’s great breakdown of the pros and cons of each (although was written a few years ago). […]



  56. […] own unique benefits. If you want a great post discussing which one is right for you, check out this TFSA vs. RRSP debate on Young and Thrifty. I’m no expert, so I’m not going to tell you what to […]



  57. Peter @ SeekingWealth.ca on June 12, 2014 at 5:50 am

    I have been asked this question so many times, and the answer really depends on each individual’s personal situation. Their current tax bracket, risk tolerance (therefore expected returns), etc. Ideally, people should contribute the maximum to both every year.

    Cheers,

    Peter



  58. […] TFSA vs RRSP: Head to Head Comparison […]



  59. How to Get More Money Back on Your Tax Return on July 25, 2014 at 11:22 am

    […] TFSA vs RRSP: Head to Head Comparison […]



  60. […] TFSA vs RRSP: Head to Head Comparison […]



  61. Michael on August 8, 2014 at 10:38 am

    @young, I recently discovered this website and really enjoyed reading your post. My wife and I are always discussing the merits of investing in TFSA vs. RRSP, and I’m curious about what people’s thoughts are as to what we have chosen.

    My wife and I are both educators and have an excellent, defined benefit pension plan. Each of us works full time and so we can count on a reasonable retirement income. As the pension plan is obviously registered, it’s my understanding that we are benefiting from tax deductions based on contributions to that pension.

    That being said, my wife and I opened Tax Free Savings Accounts in each of our names as soon as we were employed out of university. Her account is intended for short term saving/spending goals, and when we had contributed the maximum amount to it, we used about half of it to pay for an auto loan that I got out of school as we needed a vehicle. Now that’s it’s been over a year, we plan to continue to contribute to it in the hopes of paying her large student loan off at some point.

    We use my Tax Free Savings account as a long term investing tool that is invested in a diversified, medium risk mutual fund with the hopes that it will be an excellent supplement to our retirement income as (like you mentioned) the money will be easy to access and obviously tax free.

    We do not invest in any RRSP aside from the pension contributions that we make on a monthly basis.

    Any thoughts? I love the dialogue that occurs on this website and will continue to read it regularly. Thanks!



  62. Sarah on August 8, 2014 at 11:26 am

    I’m back after several years! We ended up opening a spousal RRSP as well. It has been working out great for us. 🙂



  63. Kyle on August 8, 2014 at 11:58 am

    @Michael – Hey Mike, I thought I could field this one for you since both my fiancee and I are teachers and are quite familiar with the defined benefit plans you are referring to.

    The TFSA is definitely a great friend to someone in our position. Have you read our RRSP vs TFSA article? It sort of outlines the cost-benefit analysis. I’d say that for us the TFSA has a lot of flexibility advantages – BUT – only if it’s used for long-term savings and you’re not tempted to keep pulling the money in and out.

    Thanks for stopping by and commenting! Have you checked out our Free eBook on how we invest?



  64. Kyle on August 8, 2014 at 12:42 pm

    Great to hear Sarah! How are your overall investing goals coming along?



  65. Young on August 9, 2014 at 12:17 pm

    @Michael- Awesomeeeee! Max out TFSA! If you had a choice do TFSA first, if extra money lying around do RRSP.



  66. CraigM on September 24, 2014 at 3:34 pm

    Your math is wrong. 8000 of gross income equal 5600 of net at 30%. 5000 is a marginal tax rate of 37.5%.

    8000 / 5600 works out to 14,858.

    Regardless of the exact numbers, the tax and compounding effects are commutative – it doesn’t matter when the tax is taken out, only the rate at which it is taxed. If the tax rate is the same, you’ll end up with the same amount of money at the end with either TFSA or RRSP – the tiebreaker is the income-tested benefits and RRIF effects on average withdrawn tax rate.



  67. Bruce ratzlaff on December 4, 2014 at 2:50 am

    What would the comparison look like if RPP’s were thrown into the mix too?



  68. Nicky on December 10, 2014 at 1:07 pm

    Me and husband both filed tax last year for 980000$ income. We ended up paying out of out pocket. My employer deduct LAAP (pension plan 300$ amount)every month from my pay check and my husband does not have any pension plan. He doest want to buy RRSP because he said we can not take mony out of it when we need it or we will have to pay too much tax. Should we invest in TFSA than ?? Please help



  69. Kyle on December 10, 2014 at 7:36 pm

    I would need way more info and context to properly say anything Nicky. Also, do you mean $98,000?



  70. Chet on March 18, 2015 at 12:28 am

    Sometimes one forgets that TFSAs are transferred upon death to some else ie) Designation of Successor Holder and/or Beneficiary totally tax free. If a spouse then the entire amount transfers without additional room. If another person, successor holder, gets also tax free as well as it too bypasses probate depending on where you live. If one defines a beneficiary with an RRSP it will be taxed to the estate. The last to die may also have a much bigger tax liability. This may be important or a consideration in passing on wealth to the next generation…

    Just some passing thoughts… There is definitely a room for both but “it depends” on personal philosophies etc…..

    BL. If in a higher tax bracket and upon retirement in a lower bracket then RRSP may make sense; however, I lean towards a TFSA as I do not believe our tax system will reduce marginal tax rates as we address our social needs, health care, senior support etc.. etc..
    Maximize TFSA while we still can.



  71. Kyle on March 18, 2015 at 10:23 pm

    Great points Chet!



  72. Pamela on October 21, 2015 at 4:14 pm

    Hello, could you please share the solution you refer to that allows mortgage to be paid off in half the time? You mention it’s been here in Canada for 10 years? Thank you.

    Info came from:
    youngandthrifty.ca/tfsa-vs-rrsp/



  73. Ken on October 31, 2015 at 4:33 am

    The RSP is a joke. When you take the money out, it is taxed according to your income for that year, and since many people will be in the same tax bracket, and some higher, there will be no tax savings, only deferrment. Further, RSP withdrawals will be taxed at the highest rate…..no capital gains or dividend advantages.



  74. Kyle on October 31, 2015 at 7:57 pm

    Why does that make it a joke Ken? If you understand how to use RRSPs properly they can really help a lot of Canadians. Even the tax deferment is a big deal as it allows investments to compound without the taxman taking a bite.



  75. EclecticInvestor on November 25, 2015 at 9:14 am

    YMMV … I have co-workers who’ve changed jobs several times.

    The result is pension income is going to be a five tax bracket drop. They will have to add CPP, investment income and clawbacks to the mix but it is highly doubtful it will make up that much ground.



  76. EclecticInvestor on November 25, 2015 at 9:20 am

    “Anyone with a pension” is too strong.

    As I say … I have co-workers with a pension whose pension income will be five tax brackets lower than their current employment income.

    OAS and CPP will influence this but not that much.



  77. Kyle on November 25, 2015 at 9:26 am

    That’s a good point Eclectic. I guess we were oversimplifying in order to explain how pension income affects tax brackets and the TFSA vs RRSP debate.



  78. Paul on February 2, 2016 at 7:01 am

    Lets say a person is making 150K / year. Taxes add up and with a 10% charitable contribution the refund is ok. TFSA or RRSP?



  79. Kyle on February 2, 2016 at 10:20 pm

    Statistically speaking, you’re likely better off with an RRSP Paul, but it really depends on what your retirement income plans look like.



  80. ECoo on February 27, 2016 at 8:01 am

    What if you dont have an rrsp or tfsa yet and you dont have rrsp with workand your 52



  81. Kyle on February 27, 2016 at 12:33 pm

    It doesn’t really matter what age you are ECoo, it’s more about your current income level and what you anticipate your retirement income levels looking like.



  82. Gary on May 2, 2016 at 12:43 pm

    Sorry, Still confused.
    If I contribute to a TFSA, is there a column in my income tax form that I enter the amount in order to lower my income? .. as is the case with an RRSP?
    This before and after tax verbage makes no sense to me since I’m taxed on everything on my paycheque. Meaning everything is “after tax”.

    Thanks very much.



  83. Kyle on May 4, 2016 at 9:06 am

    Hi Gary,

    Your question is a common one! You pre-pay taxes on your paycheque right? But that’s before the government knows the precise amount that you owe. That’s why you get a refund when you contribute to an RRSP. The government looks at that contribution and basically says, “you paid too much this year, here is some of your money back”. When you contribute to a TFSA, the government essentially says, “good for you, you’ve already paid taxes on that money on your paycheque, so now you don’t owe us any taxes when you take money out of that account.” Does that make sense? It’s all about whether you pay taxes before money goes into the account, or after.



  84. Lee on May 19, 2016 at 10:02 am

    Great post Young!! It’s astounding that people don’t take advantage of the TFSA as an investment tool – I guess the banks like to market that “HISA” to the gills. I’ve done both, but with varying degrees of importance….saving up for buying a house – max out that RRSP and put the return into your TFSA, then use the HBP! Then once settled into the mortgage, ensure TFSA is 100% used, whatever % the RRSPs are matched by employers (we don’t have pensions sadly) and enough to pay off the HBP loan, and if there’s surplus, then stick it on the family member’s RRSP where it would make the most ‘tax-sense’ (i.e. bracket lowering, at top of the anticipated wage scale, not on the one who has taken maternity leave for a year!). Sometimes life happens and the renovation or the new baby makes you unable to max out both, but that’s ok too – just have to be smart with those allocations, and sometimes defer the big refund to another year to save a $ overall. It’s a marathon, and not a sprint. I can’t imagine a scenario where we will ever have enough surplus to invest in non-registered accounts, but here’s hoping!



  85. Carrie on May 19, 2016 at 5:05 pm

    I have a defined benefit pension plan and a higher income than my husband. I have been buying spousal RRSP’s. I get the tax break now and he will pay less tax when he withdraws them because he’ll have a much lower income.
    We are hoping we can “catch up” and max out our TFSA’s once our mortgage is paid off.



  86. Kyle on May 20, 2016 at 9:35 am

    You can split RRIF income anyway Carrie, so you should be able to equal out the income for tax purposes when we retire. If you max out both RRSP and TFSA you are my hero. Great stuff.



  87. Kyle on May 20, 2016 at 9:38 am

    Sounds like a great plan Lee. I hope that one day I have to figure out the minor headache of what to do with non-registered accounts – like you say, to have such problems eh?!



  88. AA on May 22, 2016 at 11:03 am

    I’ve worked in the public sector for the last 4 years since graduating university. I contribute to a DBPP, but have a large amount of RRSP contribution room from past year (after my pension adjustment). I’m thinking of purchasing a home in the next year or 2, and am really not sure if I should put my downpayment savings in a RRSP to take advantage of the HBP. I’m not sure if I’ll stay in the public sector for the next 26 years to take advantage of my DBPP. What would you recommend I do?

    Thanks for your input! I can’t figure out what’s best.



  89. Rob on May 22, 2016 at 5:56 pm

    I have maintained for years now that RRSP is the biggest scam going. You are seduced by a “tax refund”, which you often spend. You end up locking up money that is not guaranteed to compound at a rate anywhere near the rate at which it will be taxed down the road. RRSP serves one main purpose: to ensure the government will continue to tax you after age 71. If you have considerable money in your RRSP you also risk losing other “free” government benefits such as OAS. It’s a no-brainer. Choose TFSA and avoid getting burned by the CRA.



  90. Kyle on May 23, 2016 at 12:01 pm

    Rob, while I see where some of the frustration comes from, I’m not sure I follow your math. What do you mean by saying “locking up money is that is not guaranteed to compound anywhere near the rate it will be taxed”? The compounding rate is kind of irrelevant. The idea is that even if your money didn’t grow at all (which it should obviously) then when you retired you would presumably be paying a lower marginal tax rate than you were during your working tax years – at least many people will be. You’re right about the OAS clawback, and I’m wondering if they’re eventually going to means-test that to include the TFSA as well.



  91. Kyle on May 23, 2016 at 12:05 pm

    Hello AA. Whether you stay in the DBPP or not is not the primary worry in this scenario I don’t think. The real choice is do you want to get into a house sooner, or allow your retirement savings compound for longer? Using the HBP basically allows you to borrow some compounding time from yourself, in order use pre-tax earnings for a downpayment right? So what’s more important, letting your money grow in the RRSP without getting raided (you’ll eventually pay this back anyway – or at least you really should – but in the meantime several years will likely have gone by) or getting into a house? It’s up to you. Personally, I’m not a fan of buying a house right now, by that’s just my opinion.



  92. Angela on June 2, 2016 at 10:31 am

    Great post! This really made the differences clear.

    I would love some clarification on one point though. Why are TFSAs advertised as high interest savings accounts? Where does that come in in the big TFSA picture? Should that play any role in determining where to open a TFSA?



  93. Kyle on June 2, 2016 at 10:51 am

    Great question Angela! High interest savings accounts can be placed “within” a TFSA – but, they are often not an ideal use of the space. They are advertised this way because it sounds simple to people who don’t really understand what a TFSA is, and that simplicity makes it quite likely people will use the product – thus giving the lender (banks) more assets under management and more profits. I personally wouldn’t list it as a priority for where to open a TFSA, but then again I don’t plan on ever keeping a whole lot of money in a high-interest savings account!



  94. Zoey on June 6, 2016 at 4:37 pm

    I have found that the “benefit” of the TFSA, that you can take money out anytime, is actually a real negative for me.

    I like having accounts where I put money in but can’t take it back out. Especially for retirement savings. So for me the RRSP wins most of the time 🙂



  95. Kyle on June 8, 2016 at 10:11 am

    Whatever actually encourages you to keep money in the bank is probably best in your specific situation Zoey! Great job figuring out a personal solution!



  96. Amer on June 30, 2016 at 10:31 pm

    My plan is simple with this, get RRSP to the 25k$ limit, use the tax refund I get to put in a TFSA account, and use the 25k$ To buy my first home. What next? Ain’t giving that 25k$ back to my rrsp. Instead am putting a big X to RRSP! How? If am making 100k$ a year, I will be taxed for 101666$ instead for not paying back my HBP, big deal… Not!
    if you are still young, your best bet is TFSA. Remember TFSA is growing every year. Great advice to forget about the “saving accounts” and actually invest in real market instead!



  97. Kyle on July 3, 2016 at 1:18 pm

    I think I follow you Amer, but here’s my question, why in your situation do you favour not paying the money back into your RRSP vs your TFSA? You’re going to pay a fairly high tax rate on that $1,666 before it goes into the TFSA – do you think you’ll have a comparable rate when you retire?



  98. James on August 23, 2016 at 6:01 am

    I didn’t really understand the part “If you don



  99. Kyle on August 26, 2016 at 12:55 pm

    Hi James, basically the idea is that the major advantage the RRSP has is that it generates a tax refund for you right? That’s why we say it is “pre-tax income” – because after you get the refund it’s as if that money was never taxed at all. Now if you take that money and simply make a luxury purchase with it, then you essentially lose the advantage right?



  100. Daryl on August 26, 2016 at 4:32 pm

    How do RRSP’s and TSFA’s compair to IRP’s?



  101. Kyle on August 27, 2016 at 10:26 am

    IRPs are a much different product Daryl. They are slightly more complicated, but as a general rule I’d say most people are better off investing in their TFSA and RRSP first, before looking at less mainstream options such as IRPs. that being said, if you can max out the first two, there are some interesting scenarios where IRPs make some sense.



  102. TomT on September 27, 2016 at 11:29 am

    Hello
    Thanks for the quick and easy read. Like many I originally started saving money for retirement by putting money into an RRSP to help with retirement. The tax refund really made it feel like I was winning twice. About ten years ago though I started working for an employer with an amazing pension plan. Out of I just kept contributing to my RRSP as well.

    This year I sat down and did the math, and was disappointed to see that the tax advantages of the RRSP is really no longer there for me. In fact I likely should have stopped paying into them five years ago. My advise to anyone with a work place pension and RRSP’s is to sit down with someone as soon as possible to see if that advantage still exists.

    For me TFSAs are the only real option now, and I am even considering taking a hit transferring some of my RRSPs to my TFSA as I don’t know that my tax bracket will actually be any lower in my retirement than it is currently. Add to that I suspect our taxes may actually go up as a result of of irresponsible baby-boomers, I think that TFSAs may actually pay a much larger end benefit. I know I will miss that end of the year refund, but it only counts if I get to keep it in the long run.



  103. Kyle on September 28, 2016 at 11:30 am

    That makes a lot of sense to me Tom, especially when you consider you can withdraw from the TFSA without it affecting your OAS and CPP cheques (can’t say the same for RRSP). Had you read this article before do you think it would have helped you make the decision? I’m always curious as to if the writing is structured in a way that makes sense for people to digest and take action with.



  104. TomT on September 28, 2016 at 2:16 pm

    Thanks Kyle. I would have loved to have seen this article years earler. It likely would haveat, the very least, triggered me to have a closer look at my savings to see if I was getting the best bang out of my buck. I have already given the link to a few co-workers, as I know they are similarly putting to many eggs in the same basket.

    That all said the RRSPs really helped motivate me to save, and in my opinion helped me build good savings habits. If my biggest complaint is about which savings plan works best for me, I know I’m better off than many.



  105. Kyle on September 28, 2016 at 6:53 pm

    Thanks for sharing the link Tom – it means a lot to me when readers engage like that! Seems like you have a pretty solid financial foundation and will transition smoothly into the next phase of your life.



  106. Ed on December 30, 2016 at 8:58 pm

    Hi,
    I’m new to investing and just trying to learn so that I can get started. I’m in my 20s I won’t be retiring for a while, but I’m just wondering- because I want to start investing my money. So my question is, in my situation, should I start with a TFSA or RRSP? I work for the federal public service and the pension is pretty good (defined benefit plan). I’ve never invested a cent before, financial advisors have always scared me off (hence why I’m lurking here on your website). So given that I have a good pension when I retire, are you saying I should focus on TFSA instead? Thank you kindly.



  107. Kyle on January 3, 2017 at 10:50 am

    You can’t go wrong getting your feet wet with a TFSA in your situation Ed. You can always use your RRSP room as you get further into your career and presumably make more money.



  108. Kira on January 8, 2017 at 5:13 pm

    Great insight and thorough post on the differences between both investment vehicles! I am 31 this year and just maxed out my TFSA but have not invested anything fully in it yet due to market uncertainties. I have like 50% cad and 50% usd parked in there for flexibility in investing CAD or USA markets. I am still not sure what to invest or to max out my money. If your money is parked there without any buying of investments, do you get a 2% high interest from the bank? I am thinking of putting in like 25K into my RRSP (which I have not put any yet) for investments and possibly to contribute towards a downpayment to a home in a couple years and also to reduce my tax bracket as I am in a high tax bracket as of this year. I do contract jobs so not much of pension to look for when I retire. What do you suggest I should do or what I am doing is right?



  109. Kyle on January 9, 2017 at 6:57 pm

    Have you checked out our robo advisor article? I think it might be a great fit for someone like yourself. Check it out and let me know if you still have these questions.



  110. Dominic on January 29, 2017 at 4:31 pm

    I want to start investing in the stock market by myself. Is it better to use a RRSP or TFSA account for that kind of investment? If I have capital gains from selling does the money I keep in the account taxable as income?



  111. Kyle on January 29, 2017 at 4:49 pm

    Hi Dominic, the capital gains will not count as taxable income in a TFSA. Any gains in an RRSP will compound tax-free, but are taxable upon withdrawal. Sign up for our free ebook for more details.



  112. Kira on January 29, 2017 at 5:54 pm

    Hi Kyle,

    Yes I have read the robo advisor article, very informative! I was wondering if you could recommend a robo advisor online for investing like a sum of $30,000. I got $50,000 in my TFSA which I could also transfer over to make it $80,000. Or do you think I should invest in some TD e-series funds on the TFSA while I put like $30k on a robo advisor in a bunch of ETFs to see the performance. Does robo advisors like Weathsimple provide me to contribute on a RRSP? I was thinking of contributing to my RRSP before Feb 28th to bring down my tax bracket.



  113. Kyle on January 30, 2017 at 6:34 pm

    Several questions there Kira:

    1) If you’re waiting to “see the performance” you need to read more of our stuff on index/couch potato investing. The performance over a short term is almost completely inconsequential.

    2) You can move your TFSA and/or RRSP over to any of the major robos.

    3) It really comes down to if you want to be responsible for re-balancing your TD e-series funds on your own, or what a robo advisor to help with that. Given the questions that you’re asking, I think you might benefit from the “light advice” component that the robos offer.



  114. Braden on February 17, 2017 at 4:43 pm

    The only thing I can’t seem to get is the benefit to investing your tax refund into a RRSP

    That money was taxed from you and now the government is giving it back to you. What makes it “better” to invest that money instead of money you received after tax (on your pay cheque).

    Both we taxed, in fact the money you got back for your refund was tax itself.

    I don’t get why there is an added benefit for using an RRSP to invest this money over a TFSA.

    Someone please explain this to me!



  115. Kyle on February 18, 2017 at 11:54 am

    It’s simply a matter of your tax bracket Braden. Like the advantage of the RRSP is that it is “pre-tax income” going in right? It’s only truly pre-tax if you invest the money you get back (that should have been yours all along) otherwise your spending your tax deferment. That being said, you could invest the refund in your TFSA and that will still serve you extremely well – so whatever motivates you!



  116. Manny on February 19, 2017 at 3:49 am

    Hi I was thinking of investing like $25k-30k for my upcoming RRSP into the TD e series funds like the Canadian Bond Index, Canadian Index, International Index and US Index. What would be a good percentage to contribute for each if I have higher risk tolerance and am 31 years old with lots of contribution as well on my TFSA as well. I am having hard time to distribute to see which one should I go with. I dont think doing 25% for each split would be the best option.



  117. Kyle on February 19, 2017 at 6:06 pm

    Hello Manny. The percentage in each really depends on so many more variables. You could do worse than a 25% x 4 solution! If it were me (not saying your variables are like mine) I would tamper down the bond percentage and split it between the Canadian and American markets, but that’s just me.



  118. Manny on February 19, 2017 at 6:41 pm

    Thanks Kyle for your immediate response! I was also thinking more like what you said, 30-30-30-10 like from the couchpotato model portfolio aggressive stance. Like 30% cad market, 30% international market, 30% us equities and 10% in the bond market. I see that they have risen quite high over the past few years so I am not sure if this is the best time to put money in or wait for a drop perhaps in the near future. I know you might say just invest it in because we can never time the market! but I would be interested to hear your opinions. Plus I guess with the dividends, I could do a reinvestment plan to buy more of it every year.



  119. Kyle on February 20, 2017 at 10:46 am

    That sounds like a solid plan Manny. I have no idea where the market is headed and if I did – I’d be managing a hedge fund and not a blog! Anyone that tells you they know is likely delusional Manny. I do know that over the last 100+ years the stock market has averaged a return of 10% or so. The worst 30-year rolling average is around 6%. I just take comfort in those numbers!



  120. Cecile on February 24, 2017 at 3:09 pm

    I have maxed out my TFSA and have investments in a Non Registered A/c. With the RRSP contribution deadline coming up, I would like to transfer in kind from either my TFSA or Non Registered investments to RRSP in order to reduce my Net Income. Which is a better choice, from TFSA or Non Registered? What are the Pros and Cons?



  121. Kyle on February 25, 2017 at 1:39 pm

    Hi Cecile, without knowing all of your particulars, my instinct would be to go the RRSP route – shelter your compounding investment returns as much as possible! The only time that wouldn’t be a good idea is if you think you’ll have very little taxable income in retirement or if you think you will be earning more taxable income in retirement than you are now.



  122. Cecile on February 25, 2017 at 4:49 pm

    Kyle, thanks for your reply but my question is whether to transfer in kind from my TFSA or the Non-Registered funds to RRSP.
    Both make sense but the Non Reg has capital gains, but the TFSA is moving money from a tax free to a deferred environment. I have just retired but have income in the last year which I intend to reduce with this transfer to RRSP. With the low income in my retirement, I might not be taxable when I am forced to withdraw at the mandatory age.



  123. Kyle on February 28, 2017 at 10:28 am

    I would think if you have a large amount of taxable income last year Cecile, then it would make the most sense to transfer the non-registered funds. Again, there are other variables that might make a difference, but on a balance of probabilities, that would be the way to go. Sometimes people use non-registered accounts to do things like claim losses, or if there is Canadian dividend income and they are in a low tax bracket. Given what you’ve told me though, I think this would be your best bet. If we’re talking more than a couple thousand bucks I’d contact a decent accountant who is familiar with your entire situation.



  124. Jason on March 2, 2017 at 8:25 pm

    The vast, vast majority of the talk of the TFSA vs RRSP seems to revolve on the tax bracket now vs later thing. So many people are only looking at it through that one lens. Am I missing something? If you are going to put your money in a self directed account, wouldn’t you be far better off to take advantage of being able to put more dollars into your investments up front? (so long as you didn’t jump into a crazy high income tax bracket later, but even if you did, couldn’t you just take the $ out of your RRSP, pay the taxes at your pre-big-raise tax rate and then transfer it into a TFSA?). I don’t get how getting a 10-20% return on $10,000/yr vs $6,500/yr wouldn’t more than make up for the taxes you have to pay for later. Or is it that 95% of the people here are using it mostly for index funds or just straight savings?



  125. Kyle on March 5, 2017 at 9:58 am

    So a few questions about your comments Jason. First off, love to know how you plan on getting a 10-20% return. If you’re doing that consistently you should go to Wall Street and start your own fund! Also, are you aware of how RRSP vs TFSA affects OAS and CPP? To answer your question, no you can’t take the $ out of your RRSP and pay it at your big-raise rate – it would get taxed in the calendar year you took it out. Go ahead and play with some comparison calculators to see what would work best for you. Finally, some people want to save RRSP contribution room for when they earn more.



  126. Jason on March 5, 2017 at 11:24 am

    Thanks for getting back to me. As for the 10-20%, I was blowing that away when I used to do stocks (the last year I did it I was at 56%). I was into precious metals and uranium at the beginning of the booms, as well as other commodities. Now I would go into marijuana stocks and a few others (which is funny because I hate marijuana with a passion, but it’s definitely a growth market). I paid boatloads for really good market advice (from The Dines Letter and a couple others) and it paid off. I took my profits and went into bricks and mortar (big mistake, haha) for over a decade. Now I’m looking to get back into stocks (and the expensive advice). I appreciate the OAS and CPP comment. I’m going to see an accountant soon so I’ll bring that up specifically.
    As for a Wall St fund, I doubt the stuff I’m into would scale. Warren Buffet has said many times he could get huge gains, but not when dealing with hundreds of millions. The market shrinks the larger you get. I’m just small potatoes, but that’s where the biggest gains are (which is why I pay through the nose for real-time notifications because small stocks can turn south on a dime). I’m not nearly smart enough, nor have the time to do the in depth investigating on each company which is why I pay four figures yearly for advice.



  127. Kyle on March 9, 2017 at 2:52 pm

    Very interesting Jason. I’d be interested to see what your returns on several decades from now. If you don’t mind me asking, how do you decide who has good advice and who has bad?



  128. Jason on March 9, 2017 at 5:08 pm

    Kyle, as far as who do I listen to? I am just taking baby steps right now getting back into this, but I listen to everybody I can, and then trade as emotionally neutral as I can. I’ll literally get up and leave the computer for the day if my heart rate goes up because I “have” to buy or sell and I get panicky. I get as many contradictory opinions as I can, then sort out for myself who seems like they make sense. Even after that, I still want to hear a variety of opinions. The thing I will listen to the least would be some talking head on tv. I don’t care what someone says is “hot right now” on a 24hr news channel. I want someone who follows a particular market closely and has been for decades, and they have the track record to back up their claims (Jim Sinclair and Jim Dines were two names I’ll point out from my precious metals days). I’m also not interested in people who made a wild prediction that came true. Statistically speaking, those people are wrong far more often than right but we tend to ignore their 19 misses and concentrate on their 1 big win. I also don’t follow technical day traders. That’s not in my wheelhouse. I’m more of a medium/long term holder when a new bull market starts (which is why I’m so interested in marijuana right now). The reason I got out of the market is because I don’t do anything on margin (and I’m not filthy rich) so I don’t have the leverage to see monster gains. For example, 25% on $200,000 sounds great, but it is still only $50K. That’s like making under $25/hr, and that’s if you pull all of your gains out every year. This time it’s going to be in addition to my day job so I can actually keep growing.



  129. Kyle on March 11, 2017 at 10:04 am

    That’s about the most rational stock-picking answer I’ve ever heard Jason! Good luck going forward – I just know it isn’t for me. I’m quite interested to see if you can continue to outperform the market like that. BTW, anecdotally, I agree with your assessment of the marijuana industry, I just think there are so many variables when it comes to picking the best way to play it. What if the Fed Gov decides that they will grow and distribute all legal product for example?



  130. Jason on March 11, 2017 at 4:20 pm

    If the Feds do that, hopefully it will only be in one country. I also pay extra to get interim warning bulletins (plus my parents are new junkies so I’d know within minutes, haha). That would let me get out before being absolutely pummelled. Plus, I’ll always have active stop-loss orders on anything risky. My hope though is for one of the few players in the game right now to be bought out by the big boys so they can expand like crazy. Like I said, I hate weed with a passion. Making money off if it is my revenge, haha. Thanks for the words of encouragement, because I’m a bit nervous after being out of it for so long. *crosses fingers*



  131. Kyle on March 15, 2017 at 9:47 am

    I keep thinking that eventually the cigarette companies will just buy out and dominate the market – they already have all of the logistics, distribution, and infrastructure in place right?



  132. Jason on March 15, 2017 at 8:52 pm

    That’s the hope (which is also funny because I think cigarettes are absolutely disgusting in every way. I guess it’s my way to make money off of both). I wish I could profit off of everything I can’t stand, haha.



  133. ZHao on April 3, 2017 at 11:39 pm

    I just finished paying off my school debt working multiple jobs and I am proud to say that I can finally save. It also helps that I just received a nice cash gift from family to help kick start my new beginnings. My short term/long term goal is to continue building equity for a ~100K down payment in 2-3 years.

    I have 50K cash sitting around in my checking account at the moment with an estimated 25K/year in savings for the next 2 years.

    But I have:
    $0 contributed to TFSA
    $0 contributed to RRSP

    What would you do in my situation??? Would you throw 25K into the RRSP – just enough to cover the Home Buyer’s Plan – and to also receive the nice tax deduction for next year? And then throw the remaining 25K into a TFSA High Interest Saving Account (2.0% at EQ Bank), plus any additional savings I accrue for the next few years until I am ready to withdraw and pay the down payment??

    Please advise.



  134. Kyle on April 9, 2017 at 1:00 pm

    That’s not a bad plan at all ZHao – and congrats on amassing a solid little downpayment already! The only potential flaw in the plan is if you aren’t earning enough to really take advantage of the RRSP. But assuming you’re making more than 40-50K or so, then using an RRSP would be a good idea. You might want to spread your RRSP contribution out over a few years in order to maximize your refund over that time (and to make sure you have the contribution room).



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