The Differences Between an RRSP & TFSA

"What's the difference between an RRSP & TFSA?"

This is one of the most common questions employees of a Group Retirement plan ask.

These plans are often treated as interchangeable. They are not.

Each is built differently and knowing how they differ is what helps employees make the most of them.

Contributions & Taxability

	RRSP	TFSA
Employer Contributions	Often included at a pre-determined amount. They are a tax-deductible business expense for the employer and a taxable benefit to the employee.	Often not included, typically only employee contributions. If included, they are a tax-deductible business expense for the employer and a taxable benefit to the employee.
Employee Contributions	Made with pre-tax dollars. This means contributions reduce taxable income at source and are tax-deductible to the employee.	Made with after-tax dollars. Contributions are not tax-deductible.
Contribution Limit	18% of the employee's prior year’s income, up to annual contribution limit, plus unused room carried forward. Applies to all RRSPs, less DCPP/DPSP adjustments. Unused room carries forward.	Up to annual contribution limit, plus unused room carried forward. Applies to all TFSAs. Unused room carries forward. Withdrawals are added back to contribution room the following year.
Investment Growth	No taxes on investment growth. Taxes apply when withdrawn.	No taxes on investment growth or withdrawals.
Special Withdrawal Programs	Typically, Home Buyers' Plan (HBP) and Lifelong Learning Plan (LLP) withdrawals are allowed. No tax is withheld on these withdrawals, provided the amounts are repaid according to program rules.	N/A

Conversion & Government Benefits

	RRSP	TFSA
Age Limit	Must be converted by Dec 31 of the year the member turns age 71.	No maximum age.
Conversion Options	1) Convert to Registered Retirement Income Fund (RRIF) 2) Convert to Annuity 3) Cash All withdrawals are taxable and reported on personal taxes.	No conversion required. Cash withdrawals are non-taxable.
Government Benefits	Withdrawals may reduce eligibility for government programs such as OAS and may affect certain tax credits.	Withdrawals do not reduce eligibility for government programs and certain tax credits.

Death Benefits - By Beneficiary Type

	RRSP	TFSA
Spouse	1) Transfer funds to their own registered plan. No withholding tax. 2) Receive a cash lump-sum payment No withholding tax. Reported as income on spouse’s personal taxes.	Known as the Successor Holder (spouse/common-law partner only) They inherit the TFSA directly, whereby the account continues tax-free.
Financially Dependent Child	Trustee receives cash lump-sum to hold. No withholding tax and is reported on child's personal taxes. Typically low/no income, therefore little to no tax burden.	Receives fair market value of TFSA at date of death tax-free. Any growth between date of death and date of distribution is taxable to the beneficiary.
Other Beneficiaries	Receives cash lump-sum payments. No withholding tax. Estate is responsible for tax burden.
No Beneficiary	Funds go to the estate - subject to probate. Any growth after date of death is taxable to the estate.	Funds go to the estate - subject to probate. Any growth after date of death is taxable to the estate.

The value of a Group Retirement plan is not only in offering it, but in employees understanding how to use it.

When the difference between these accounts is clear, employees engage with more confidence -

and the plan delivers on what it was meant to do.