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What is the difference between RRSP and TFSA? Briefly describe how each one works. What is...

What is the difference between RRSP and TFSA? Briefly describe how each one works. What is the advantage of RRSP over TFSA? What is the advantage of TFSA over RRSP? What is the advantage of each (RRSP and TFSA) over a regular taxable investment account?

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Difference between RRSP and TFSA

RRSP TFSA
RRSP is intended for Retirement savings TFSA Can be for any type of saving Goal
Maximum age till which one can make contribution to RRSP is 71 years There is no upper limit till which you can make contribution
Here contribution made are deductile for tax calculations TFSA Contribution are not tax deductibles
One need income to make contribution to RRSP One can make contribution to TFSA even if he has no income
Withdrawal of funds from RRSP attracts tax Withdrawal of funds from TFSA do not attracts tax

Advantage of RRSP over TFSA is that in RRSP one can deffer income tax. If marginal income tax rate is lower during retirement than RRSP is beneficial

Advantage of TFSA is that the contributions are made after deducting taxes. This can be advantageous if current tax is lower than estimated retirement tax

In regular taxable investment Account one has to pay tax on contributions made as well as interest earned on the contribution where as RRSP and TFSA provides tax benefits as discussed above. It allows to earn interest tax free

jeff jeffy answered 5 months ago
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