Are you looking to open an investment account, but are not sure which option is best for you? Understanding the differences between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) can help you make an informed decision about where to grow your money. Both accounts offer valuable advantages but serve separate purposes. In this article, we will breakdown the differences of RRSPs and TFSAs to help you figure out which investment type will work for your goals.  

RRSP vs TFSA Key Differences 

An RRSP is an account designed specifically for saving for retirement. Contributions made to the RRSP are all tax-deductible, and interest and returns earned are tax-free. You are only taxed when you withdraw money from your plan. This is ideal if you want to reduce your taxes today while saving for the future.  

A TFSA is an account designed to help you save for short, medium, or long-term goals. The money set into a TFSA is not tax deductible, however interest and returns earned in the TFSA are tax-free. You can withdraw money whenever you need and these withdrawals are not taxed. 

Here is deeper dive into the key features of the RRSP and TFSA. 

Annual Contribution Limits 

RRSP – Your annual allowable RRSP contribution room is the lesser of these two amounts:  

• 18% of your earned income from the previous tax year; or  

• the annual maximum (or contribution room) set by Canada Revenue Agency (CRA).  

You can contribute to your RRSP up until December 31 of the year you turn 71. Unused contribution room from previous years carries forward. Your available RRSP contribution room is listed on your most recent Notice of Assessment. 

TFSA – The contribution limit for 2025 is $7,000 plus any unused contributions from previous years. You can find your available contribution room on your most recent Notice of Assessment. 

Contribution deadlines 

RRSP – The contribution deadline for RRSPs in the 2025 tax year is March 2, 2026. Contributions made after this date are still accepted, but they will be applied to the following tax year.  

TFSA – Contributions to TFSAs are not tax-deductible so there is no contribution deadline. New contribution room maximums, along with remaining room from previous years, begin January 1 and follow the calendar year.  

Overcontributing to your Plan 

RRSP – It is not recommended to overcontribute to your RRSP, but there is a $2,000 lifetime allowance for overcontributions if you wish to do so. 

TFSA - Any overcontributions to your TFSA will result in a penalty until they are removed or more contribution room becomes available. Charges are 1% per month of the amount you overcontributed by. For example, if you overcontributed by $1,000, you would be charged a penalty of $10 per month. 

Transfers 

RRSP - Moving your funds between financial institutions or adjusting the investments held within your RRSP does not count as a withdrawal. As a result, these transactions are not taxable. 

TFSA - Transferring your TFSA to another financial institution or changing the investments within your TFSA does not count as a withdrawal and does not affect your available contribution room. 

Carry-Forward Amounts 

RRSP - Any unused contribution room can be carried forward to future years. The total amount of contribution room you have available is shown on your most recent Notice of Assessment. 

TFSA - Unused contribution room from past years can also be carried forward for your TFSA. Additionally, any amounts you withdraw are added back to your TFSA contribution room in the next calendar year. Your available contribution room is outlined on your most recent Notice of Assessment. 

Withdrawals 

RRSP - You can withdraw funds from your RRSP at any time, except from certain fixed-term investments. However, any amount withdrawn is considered taxable income and must be reported on your next tax return. Withdrawals are also subject to a withholding tax of 10% to 30%, depending on the amount taken out. The only exceptions to this rule are withdrawals made under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP), which allow you to withdraw up to a set maximum and repay the funds over a 10–15-year period. Talk with someone from our team to discuss your eligibility and details for these programs. Once you withdraw from your RRSP, you cannot recontribute that amount—except through the HBP or LLP. Because of this, RRSP withdrawals are generally best saved for retirement. If you’re thinking about withdrawing early, connect with one of our staff to discuss your options.  

TFSA - You can withdraw funds from your TFSA at any time (except for certain fixed-term investments) without paying taxes on the withdrawal. Any amount you take out will be added back to your contribution room at the start of the next calendar year. If you still have available contribution room after making a withdrawal, you can continue to contribute to your TFSA within the same year. 

Impact on Government Benefits 

RRSP- Withdrawals count as income, and they may reduce income benefits. 

TFSA - Withdrawals do not count as income, so they do no impact benefits. 

Which Option Should I Choose? 

Choosing the best investment option for you comes down to your financial goals. If your goal is retirement planning, an RRSP is often a good choice because of its immediate tax savings and long-term benefits. If you’re saving for multiple life goals—such as buying a car, planning a trip, or building a rainy-day fund—a TFSA provides flexibility, easy access, and tax-free growth. Many Canadians benefit from using both: contributing to an RRSP for retirement while using a TFSA for accessible, tax-free savings throughout life. 

Still have questions about RRSP or TFSAs? Book an appointment with a Financial Services Officer at one of our Provincial Credit Union branches by texting 1-855-728-2211 or calling your nearest branch.