How is a TFSA different from an RSP?
RSPs are designed to help you save for retirement. TFSAs are designed to help you save for anything. There are a number of other differences. RSP contributions are based on the amount of earned income and also reduce taxable income. TFSA contributions are not based on income and TFSAs do not reduce taxable income.
An RSP is designed specifically to provide you with income after you retire. Your contribution limit is based on your income and the contributions you make are tax-deductible, but you do pay tax on the money when you receive it as income. A TFSA is not designed specifically for retirement, but to help you save money for a wide range of goals. The amount you can contribute is not based on your income and your contributions are not tax-deductible. You can withdraw your money any time you want it, and you dont pay tax on those withdrawals. You also dont lose contribution room when you make a withdrawal you can recontribute that amount to your TFSA the following year or any year after that.
• Withdrawals from a TFSA are tax-free and are added to unused contribution room starting the following year. • Contributions to a TFSA are not tax deductible. • With a TFSA you don’t need earned income to accumulate contribution room. Everyone has the same contribution room. • There is no requirement to convert the TFSA to an income payment option (i.e. RIF) at any age. • You can give money to your spouse to open a TFSA without being subject to Canada Revenue Agency’s (CRA) attribution rule. For more details on the differences, click on Comparing TFSAs and RSPs.
