Thank you to Angela Hung of financialtechtools.ca for this excellent breakdown between the TFSA and RRSP
TFSA VS RRSP: DEPOSITS
So in the Deposit phase, we look at:
- Contribution Room
- Carry Forward
- Tax Deductibility
- Tax Treatment of Growth
TFSA: $6,000 if you never opened a TFSA, you can contribute up to $69,500 today.
- $5,000 for each year from 2009 to 2012;
- $5,500 for each of 2013 and 2014;
- $10,000 for 2015;
- $5,500 for each of 2016, 2017 and 2019
- $6,000 for each of 2019 and 2020
RRSP: 18% of your 2020 pre-tax earned income or $27,230. So for example if you earned $60,000, then your deduction limit would be $10,800 (18% x $60,000). If you earned $200,000, then your deduction limit would be capped at the max limit of $27,230.
TFSA: You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room.
RRSP: You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.
TFSA: You are contributing to your TFSA with After-tax dollars.
RRSP: You are contributing to your RRSP with Pre-tax dollars.
TFSA: Contributions are not tax deductible.
RRSP: Contributions are tax deductible. (If you’re interested in your tax savings, you should check out our calculator on our 2020 RRSP Campaign post: https://financialtechtools.ca/2020-rrsp-campaign/)
Tax Treatment of Growth
TFSA: The growth inside a TFSA is tax free therefore it’s a great savings vehicle for immediate objectives such as a down payment for a home.
RRSP: The growth inside an RRSP is tax deferred, which means at withdrawal, you will need to pay tax, therefore it’s a good choice for long term goals such as retirement.