RRSP vs. TFSA: Which one is ideal for me?

Registered Retirement Savings Plan (RRSP)  and Tax Free Savings Account (TFSA) are both registered accounts available to all Canadians.

What’s the difference between RRSP and TFSA?

RRSP has no minimum age. As long as a Canadian, has employment income and files a tax return. This contrast with TFSA which requires to be at least 18 years of age but no paid employment necessary.

RRSP gives you a tax deduction and allow you to defer payment of taxes on your investments until you take your money out or make a withdrawal. 

RRSP is simply a retirement savings and investment vehicle for all employees and self-employed in Canada. There are other uses of RRSP that we do not know.

In contrast, TFSA  will not give you a tax deduction, but you will never have to pay taxes on income you earned on your investments.

There is some confusion on the use of TFSA!

I’ve talked to a lot of people and the confusion comes on the (S) of the acronym as they thought that they could only put money on a regular savings account which gives insignificant interest rates. It could have been better if it’s called Tax Free Investment Account.

It doesn’t help too, as when you see a financial adviser in a bank or financial institution I felt they are biased and are not as honest as to where you can invest your TFSA money for better returns. Rather, they easily offer you their High Interest Savings Account (HISA) and mutual funds.

Little do we know that TFSA  is not only limited to HISA, GIC, and mutual funds but you can invest it in stocks and ETFs too.

The question then most Canadians asked, which do we contribute first and which one is better?

Advocate of RRSP believe, if you are on the high income bracket and think you will earn less during retirement that RRSP is the better choice. In contrast, TFSA is better if you withdraw the money if your marginal tax rate is higher, as you’ve already paid taxes on the money you contribute.

Millennials have their own take on both registered accounts!

There is a growing consensus, that the younger generations millennials favor TFSA over RRSP.  A generation characterized as career oriented, adventurous, likes to travel,  and putting money towards retirement is the least of their priorities.

This generation no longer plans of working till retirement. They consider RRSP as similar to work pension and only able to take money out during retirement age.

I myself have millennial kids, and they echo the same sentiments. Moreover, I am not in a position to debate if they are right or wrong but I totally understand we we’re not born in the same generation. What works with my generation may or may no longer suitable to their lifestyle and future plans.

There is one valid point that I certainly agree with them, Why wait for the benefit of RRSP, if, TFSA offers with no strings attached! 

The simplicity of TFSA is what draws them. They will not be taxed for taking money out and they understand that whatever amount and profit their investments grow, taxman won’t take any slice of the pie!

And the best part, is that they can take out their investments anytime for whatever purpose they want and need not to wait for retirement before doing so, as in the case of RRSP. Hence, why I concur that TFSA is best suited to their generation.

Start early and maximize your contribution room

If  you are Canadian citizen or permanent resident and have lived in Canada since 2009, have a valid social insurance number and at least 18 ( Age of majority differs in other provinces) you are eligible to open a TFSA account.

My two young adult children have already opened their own TFSA investment account and their goal is to max out their contributions every year. They treat TFSA as long term investment and not planning on taking it out any sooner.

They’ve seen a good return on their investments so far, as a result, they may not decide to take the money out if they acknowledge that their dividends (passive income) continue to grow.

Here’s how much contribution room to your TFSA since the inception in 2009!

YEAR          VALUE

2009          $ 5,000

2010          $ 5,000

2011          $ 5,000

2012          $ 5,000

2013           $ 5,500

2014           $ 5,500

2015           $ 10,000

2016           $ 5,500 

2017           $ 5,500

2018           $ 5,500

2019           $ 6,000

2020          $ 6,000

2021          $ 6,000

So, if you haven’t contributed to your TFSA SINCE 2009 you should be able to put $75,500 for 2021. 

When and how much should I contribute to my TFSA?

Maximizing the benefits of your TFSA is to utilize your contribution room of e.g., $6,000 at the beginning of the year preferably first week of January. 

Key points to remember!

Any amount withdrawn from your TFSA account that year will not be allowed to be contributed back on the same year. The withdrawal amount will be added to your available contribution room the following year.

Watch out for over-contribution!

There is an over-contribution penalty of 1% per month, levied on the amount of excess TFSA contributions. You will continue to be penalized until you have removed the excess amount or more contribution room becomes available.


My Final Thoughts


RRSP and TFSA both have their pros and cons. It is best to contribute both if you have the capacity to do it. Generally speaking, I personally maxed out my TFSA first, then RRSP if I still have some room, and then non-registered accounts if still have the capacity to do so.

For simplicity, I prefer TFSA over RRSP. Therefore, I can identify millennial’s preference of the former as supposed to contributing to an RRSP.

To summarize, whatever your choice, the key is to start now and maximize your contribution room if you can. Don’t procrastinate. Time wasted will never be regained.


Which registered accounts have you contributed? Have you maximize your contribution room? Let me know in the comment section below.

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