Feeling overwhelmed by the account choices when it comes to your savings goals? Let’s look at how three registered accounts compare.
Account Type |
TFSA |
RRSP |
RESP |
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 |
2019-2021: $6,000
|
18% of the previous year’s earned income, less any pension adjustment, up to the maximum annual contribution limit for the yearUnused contribution room is carried forward until the end of the year you turn 71Find 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 beneficiaryUnused contribution room can be carried forwardThrough 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 17Lifetime maximum for the CESG is $7,200 per beneficiaryAdditional 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 and may reduce income taxes in the year of contributionExcess 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-contributionsSpousal RRSPs can be used to reduce household taxable income |
Contributions are not tax-deductibleExcess contributions above the $50,000 lifetime contribution limit subject to a 1% per month penalty |
Tax Treatment for Withdrawals |
Withdrawals are tax-freeWithdrawal 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 ageForeign 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 openedWith a Family RESP, if a child doesn’t pursue post-secondary education, a sibling can use the funds for their educationForeign 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.
Want to learn more? Here are some articles that provide more details:
Understanding Tax Free Savings Accounts (TFSAs)
Understanding Registered Retirement Savings Plans (RRSPs)
Understanding Registered Education Savings Plans (RESPs)
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.
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