Many Canadians can be confused by the differences between a RRSP, or Registered Retirement Savings Plan, and a TFSA, or Tax-Free Savings Account. For starters, a RRSP merely defers taxes on the funds saved in the account, while funds saved in a TFSA are not taxed. Those funds you save in a RRSP also lower the income you will be taxed on for that year, especially if you’re in a higher income tax bracket. Each type of saving plan has different tax advantages, so consult the regulations or your tax professional to decide which is the best option for your finances.
“Here are some key differences. First, TFSAs allow you to grow your savings or investment tax free, while RRSPs allow for tax-deferred growth. When you withdraw from an RRSP (or RRSP turned RRIF), the amount will be counted as taxable income.”