Lifelong Learning Plan.<\/strong> You can withdraw up to $10,000 in a calendar year, and up to $20,000 in total, to pay for full-time training or education for you or your spouse. You\u2019ll have to repay what you withdraw over 10 years.<\/li><\/ul>TFSA vs RRSP: How much can I contribute per year?<\/h3>
RRSPs let you contribute more over the lifetime of your investment, but the amount you can contribute each year depends on how much money you earn. Your RRSP contribution limit for 2024 is 18% of the earned income you reported on your tax return in the previous year, up to a maximum of $32,490.<\/p>
TFSAs have smaller annual contribution limits. You can invest $7,000 per year (as of 2025) with up to $102,000 for the lifetime of your TFSA.<\/p>
TFSAs and RRSPs both let you carry your unused contribution amounts forward into future years. For example, if you only contribute $5,000 to a TFSA instead of the maximum of $7,000, the $2,000 difference will be added to your contribution limit for the following year, allowing you to contribute up to $9,000.<\/p>
You\u2019ll also incur penalties from the Canada Revenue Agency<\/a> (CRA) if you exceed your maximum allowable contribution in any given year.<\/p>Can I contribute to both a TFSA and an RRSP?<\/h4>
Yes, you can hold a TFSA and an RRSP at the same time and contribute to both. This could be a good solution for you if you want to save for retirement (with an RRSP), but you\u2019d also like to stow away an emergency fund (with a TFSA) that you can use at any time without penalty.<\/p>
You may even want to max out your contribution for both types of investments each year. This will let you take advantage of tax breaks while still earning the maximum amount of tax-free interest on your investments.<\/p>
TFSA vs RRSP pros and cons<\/h3><\/div>
RRSP Pros<\/h4>- Tax benefits. <\/strong>Contributions to an RRSP can be deducted from your taxable income, and you can defer paying tax on RRSP withdrawals until retirement, when you\u2019ll likely be in a lower income tax bracket.<\/li>
- Large contribution amount.<\/strong> Depending on your income, you can contribute up to $32,490 to your RRSP per year, and any unused contribution space can be carried over to future years.<\/li>
- Easy to open.<\/strong> There\u2019s no minimum age requirement to worry about with an RRSP.<\/li><\/ul>
RRSP Cons<\/h4>- Lack of liquidity. <\/strong>You\u2019ll be taxed when you withdraw money from an RRSP before retirement, so an RRSP is not suitable if you want to be able to access your funds at any time.<\/li>
- Tax is deferred.<\/strong> RRSPs allow you to defer tax, not avoid it completely \u2014 you still have to pay tax on the money you withdraw in retirement.<\/li>
- Your income affects your contribution limit.<\/strong> Your RRSP contribution limit is capped at 18% of earned income.<\/li>
- Tax complications during retirement.<\/strong> RRSPs must start paying out an income or be converted to an RRIF when you turn 71. This means you\u2019ll have tax obligations to manage in retirement, while it can also affect the Old Age Security pension you\u2019re entitled to.<\/li><\/ul>
Pros and cons of TFSAs<\/h3><\/div>
TFSA Pros<\/h4>- Save money for any purpose.<\/strong> You can use a TFSA to save for any financial goal you want, such as a vacation, a home renovation, an emergency fund \u2014 you name it.<\/li>
- Tax-free withdrawals.<\/strong> TFSAs let you withdraw from your savings without having to pay taxes, so you can access your money when you want.<\/li>
- Simple eligibility requirements.<\/strong> If you\u2019re a Canadian resident, 18 years or older and have a Social Insurance Number, you can open a TFSA.<\/li>
- No expiry date.<\/strong> You won\u2019t have to worry about your TFSA rolling over into a retirement income fund in the same way that an RRSP will.<\/li><\/ul>
TFSA Cons<\/h4>- Small contribution limit.<\/strong> You can only put $7,000 per year into your TFSA, which may limit your ability to reach your savings goal.<\/li>
- Contributions aren\u2019t tax-deductible.<\/strong> You won\u2019t be able to claim your contributions as deductions to reduce your taxable income.<\/li>
- Dipping into savings.<\/strong> Because it\u2019s easy to access the funds in a TFSA, you\u2019ll need to be disciplined and resist the temptation to dip into your savings unnecessarily.<\/li><\/ul>
Which is better, a TFSA or an RRSP?<\/h3>
Determining whether a TFSA or an RRSP is better depends on your own financial goals, income level and how you plan to use your savings.<\/p>
A TFSA is better if\u2026<\/h4>- You want easy access to your money.<\/strong> If your income fluctuates, or if you just want to be able to withdraw from your savings to cover unexpected expenses, a TFSA lets you access your savings at any time without penalty.<\/li>
- You have short-term savings goals.<\/strong> If you\u2019re saving for a vacation, a home renovation or a new car, a TFSA is a good choice. However, it\u2019s worth noting that a TFSA also offers an effective way to save for your retirement.<\/li>
- You\u2019re in the lowest tax bracket.<\/strong> A general rule of thumb is that if you earn less than $50,000 a year, a TFSA may be a more suitable choice than an RRSP. This is due to the fact that tax-deductible RRSP contributions won\u2019t have the same impact on the tax you pay as they would for someone who earns a higher income.<\/li><\/ul>
An RRSP is better if\u2026<\/h4>- You\u2019re saving for retirement.<\/strong> If you\u2019re thinking long-term and you want to save and invest to fund your retirement, an RRSP offers several benefits.<\/li>
- You\u2019re above the lowest tax bracket.<\/strong> Making tax-deductible RRSP contributions will reduce your tax bill. Then, when you retire and access the money in your RRSP, you\u2019ll likely be earning a reduced income, so you\u2019ll be taxed at a lower rate.<\/li>
- Your employer matches your RRSP contributions.<\/strong> If you have a group RRSP where your employer matches each contribution you make, you can grow your retirement savings even quicker.<\/li><\/ul>
Ultimately, you may decide to open both types of accounts. This will allow you to save for shorter-term goals and build a rainy-day fund with a TFSA, while also investing for your retirement with an RRSP. If you\u2019re not sure about the best approach to help you reach your financial goals, speak to a financial advisor.<\/p>
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