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Comparing TFSAs, RRSPs and RESPs

Written by The Inspired Investor Team | Published on January 6, 2021

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Feeling overwhelmed by the account choices when it comes to your savings goals? Let's compare three registered accounts — Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs).

Account type




Useful to:

Save for any goal with tax-free growth of your investments and easy access to your money

Save for retirement with tax-deductible contributions and tax-deferred growth of your investments

Save for a child's education and benefit from tax-deferred investment growth

Annual contribution limit

The federal government determines the amount individuals can contribute to a TFSA each year

Unused contribution room is carried forward indefinitely

Find your available contribution limit by logging in to My Account on the Canada Revenue Agency website*

18% of the previous year's earned income, less any pension adjustment, up to the maximum annual contribution limit for the year

Unused contribution room is carried forward until the end of the year you turn 71

Find your available contribution limit on your most recent Notice of Assessment, or log into My Account on the Canada Revenue Agency website

No annual limit; lifetime limit of $50,000 per beneficiary

Unused contribution room can be carried forward

Through the Canada Education Savings Grant (CESG), the federal government matches 20% of your contribution, to a max of $500 per year (per beneficiary) – until the end of the year the beneficiary turns 17

Lifetime maximum for the CESG is $7,200 per beneficiary

Additional government incentives available for qualifying families

Tax treatment for contributions

Contributions are not tax-deductible.

Excess contributions subject to a 1% per month penalty; a 100% penalty tax may be charged on any income connected to deliberate over-contributions

Contributions are tax-deductible

Excess contributions subject to a 1% per month penalty if you exceed the $2,000 lifetime over-contribution amount; a 100% penalty tax may be charged on income earned from over-contributions

Spousal RRSPs can be used to reduce household taxable income

Contributions are not tax-deductible

Excess contributions above the $50,000 lifetime contribution limit subject to a 1% per month penalty

Tax treatment for withdrawals

Withdrawals are tax-free

Withdrawal amount is added to contribution room starting the following calendar year

Withdrawals (except Home Buyers' Plan and Lifelong Learning Plan) are subject to withholding tax and added to taxable income

Educational assistance payments (plan earnings and grants) are taxable to the beneficiary (student); return of original contributions is tax-free

Special features

No requirement to close the plan at a certain age

Foreign dividend and interest payments received on investments may be subject to non-recoverable, non-resident withholding tax

By the end of the year you turn 71, you must convert an RRSP to a retirement income option such as a Registered Retirement Income Fund (RRIF)

Can withdraw funds tax-free to buy or build a first home or for lifelong learning, as long as the funds are returned to the plan within a specified time

You can contribute to an RESP until 31 years after you first opened it. The plan must be closed at the end of the 35th year following the year the plan was opened

With a family RESP, if a child doesn't pursue post-secondary education, a sibling can use the funds for their education

Foreign dividend and interest payments received on investments may be subject to non-recoverable, non-resident withholding tax

*Note: Any TFSA contributions or withdrawals contributions made in the previous year may not be reflected in your available current year contribution room until after the end of February. All issuers have until the last day of February to electronically submit a TFSA record to the CRA for each individual who has a TFSA. Transactions made in the current year will not be included.

Explore the Investing Academy to learn more about account types and to find the latest investing guides.

The information provided in this article is for general purposes only and does not constitute personal financial or tax advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.

RBC Direct Investing Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Canadian Investment Regulatory Organization and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence.

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Any information, opinions or views provided in this document, including hyperlinks to the RBC Direct Investing Inc. website or the websites of its affiliates or third parties, are for your general information only, and are not intended to provide legal, investment, financial, accounting, tax or other professional advice. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Direct Investing Inc. or its affiliates. You should consult with your advisor before taking any action based upon the information contained in this document.

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