How is a TFSA different from an RRSP?
• Withdrawals from a TFSA are tax-free and do not result in lost contribution room. • Contributions to a TFSA are not tax deductible. • With a TFSA you dont need earned income to accumulate contribution room. • There is no requirement to convert the TFSA to an income payment option (i.e. RRIF) at any age. • You can give money to your spouse to open a TFSA without being subject to the Canada Revenue Agencys (CRA) attribution rules.
• Withdrawals from a TFSA are tax-free and do not result in lost contribution room. • Contributions to a TFSA are not tax deductible. • With a TFSA you don’t need earned income to accumulate contribution room. • There is no requirement to convert the TFSA to an income payment option (i.e. RRIF) at any age. • You can give money to your spouse to open a TFSA without being subject to the Canada Revenue Agency’s (CRA) attribution rules. For more details on the differences, see Comparing TFSAs and RRSPs.
An RRSP is primarily intended for retirement. The TFSA is like an RRSP for everything else in your life. Both plans offer tax advantages, but they have key differences: • Contributions to an RRSP are deductible and reduce your income for tax purposes. Contributions to a TFSA will not be tax-deductible; however, the income generated will not be taxed. • Withdrawals from an RRSP are added to your income and taxed at your current rate; your TFSA withdrawals and growth within your account will be tax-free.
TFSA RRSP Limits Maximum 2009 annual contribution limit is $5,000 regardless of an individual’s earned income Contribution limit is based on an individual’s earned income from the previous year, up to a maximum amount Tax Deductibility Contributions are not tax-deductible and therefore do not reduce taxable income Income/returns earned on investments are tax-free Contributions are tax-deductible and therefore reduce taxable income Income/returns earned on investments are tax-sheltered until withdrawn Withdrawals Withdrawals are not added to taxable income – they are tax-free Withdrawals are added to taxable income and taxed at the applicable marginal tax rate. • Can I withdraw money from my TFSA? You can withdraw money from your TFSA at any time; however, specific product restrictions may apply (e.g. GIC maturity dates). The amount you withdraw can be put back in your TFSA starting the following year without impacting your contribution room. • Would contributions and withdrawals have a
