I’m saving for a long-term goal: should I use an RRSP or a TFSA?

You have a little extra money and would like to save it in the long run. But what is the best way to do it?

We asked personal finance expert Chuck Grace if contributing to an RRSP or TFSA is a smarter option for long-term savings.

Grace, a professor of personal finance at Western University’s Ivey School of Business, said it depends on what you’re saving for. If it’s a financially secure retirement, the RRSP gets the go-ahead. If it is almost anything else? A TFSA is the way to go.



Amount of your annual income that you can contribute to an RRSP (up to a limit of $ 27,830).

$ 6,000

Annual TFSA contribution limit.

5.9 million

Number of people who contributed to an RRSP in 2019. *

8.5 million

Number of people who contributed to TFSA in 2018. *

* Most recent year for which statistics are available.

Source: Statistics Canada, Canada Revenue Agency

“A TFSA is … incredibly flexible. You can put money. You can take it out. You can put it back. And while it’s there, it’s tax-free, ”Grace said.

Unlike an RRSP, where withdrawals are generally taxable if you withdraw money before you retire, TFSA withdrawals are not penalized. That, Grace says, makes TFSAs great for saving for anything from vacations to cars to paying for your kids’ braces.

“RRSPs are great for saving for retirement,” Grace said. You can contribute during your peak income years when your tax rate is high and you don’t have to pay taxes on the money you come in. You pay taxes when you withdraw the money, but if you are retired, then your tax rate is likely to be much lower.

Another advantage RRSPs have, Grace notes, is a much higher contribution limit. You can deposit up to 18 percent of your earnings in an RRSP, up to a maximum of $ 27,830 (pension contributions your employer makes count toward your RRSP limit). In 2021, the maximum contribution to a TFSA is $ 6,000.


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