Difference between TFSA & RRSP

Video Transcript


TFSAs and RRSPs are complimentary products. If you’re trying to decide where to put your money, let’s talk about what you need to consider. From a pure dollars and cents standpoint, looking at your tax bracket at different points in time will help you figure out what makes sense for you.

If you expect your tax bracket to remain unchanged over the time period that you save in your TFSA and withdraw from your TFSA an RRSP and TFSA are equally tax-efficient.

If you expect your tax bracket to be lower when you withdraw your money then investing it in an RRSP is more tax-efficient. That’s because you can reduce your taxable income now by making RRSP contributions and pay taxes at a lower rate when you withdraw the money later.

If you expect your tax bracket to be higher when you withdraw your money then the TFSA is the most tax-efficient option. That’s because your money grows tax-free now and your withdrawals are tax-free later.

Other important things to consider. Keep in mind that RRSP contributions reduce your taxable income and your investments grow on a tax-deferred basis. And, in some cases, your contributions can be made with pre tax dollars. With a TFSA, your contributions are made with after tax dollars. But you have the benefit of being able to grow your money tax-free and take it out whenever you want.

Talk to us at Scotiabank about how a Tax Free Savings Account can work for you.