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How is a TFSA different from an RRSP?

TFSAs and RRSPs both offer tax advantages that can help you achieve your saving and investing goals.

The truth is, how you should save and invest isn't always clear- cut, but your savings plan can include a TFSA and an RRSP, and ideally, both. But – if you must choose one, over the other, it's important to understand how they differ. In what follows, we share several important considerations to help you decide which option may be right for you.

Comparing Account Features:

Primary Use: RRSPs are typically used to save for retirement. TFSAs are typically used to save for any purpose.

Eligibility: You can contribute to an RRSP after you start earning income from employment or certain other sources. To open a TFSA at TD, you must be the age of majority in your province of residence.

Contribution Limit: The 2020 contribution limit for a TFSA is $6,000. Your 2019 RRSP contribution limit, on the other hand, is 18% of your earned income reported on your 2018 tax return or $26,500 – whichever is lower, subject to certain adjustments.

Unused Contribution Room: Your unused contribution room is carried forward for RRSPs & TFSAs.

Withdrawals: RRSP withdrawals are taxable, subject to certain exceptions. With a TFSA, you can withdraw money tax-free any time (subject to any limitations on the investments held).

Withdrawn Amounts: When withdrawing funds from an RRSP, your contribution room is lost for amounts you withdraw; for a TFSA, withdrawn amounts are added back to your contribution room in future years.

Taxation: Contributions made to your TFSA are not tax deductible. RRSP contributions are tax-deductible. This means any contributions you make to your RRSP reduce the amount of tax you pay on your personal income.

Plan Maturity: An RRSP matures at the end of the calendar year in which you turn 71. There is no age limit for a TFSA.

>> See which TFSA account option may be suitable for you and how to apply.

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