RRSP

To find out which savings plan or plan combination is best for you, savers should always consider their own circumstances and aim for rational personal goals.

The Registered Retirement Savings Plan (RRSP) is designed to help Canadians build capital to provide themselves an income on the day of their retirement.

Contributions to the Registered Retirement Savings Plan are deductible from taxable income.

The contribution and income from the RRSP investments are taxed on withdrawal. Withdrawals from the Registered Retirement Savings Plan are perceived as income and will also need to be added to your tax return.

RRSP withdrawals or RRIFs (registered retirement income fund) can also affect eligibility for the federal Guaranteed Income Supplement (GIS) benefits and old-age pension, as the latter are calculated based on Canadians taxable income. Withdrawals may also, depending on the reported income, influence eligibility for other tax credits offered by both federal and provincial government.

TFSA

The Tax-Free Registered Account (TFSA) is also a vehicle to stimulate savings and contributions made in this plan come from earned income net of tax and are not deductible from taxable income.

On the other hand, as the name describes it, contributions and investment income in this plan are tax-exempt. Any capital gains, dividends or interest paid within the TFSA can be withdrawn tax-free.

When there are one or more withdrawals in the TFSA plan, they have no impact on taxable income, nor on the eligibility for federal benefits, such as the Guaranteed Income Supplement (GIS), on the old age pension or any other tax credit offered by both provincial and federal government.

All Canadians who place their money in an unregistered account should first consider contributing to a Tax Free Savings account.