TFSA or RRSP? What is the difference?

Posted on November 28, 2024 by Ryan Dahlman

By Nerissa McNaughton
Southern Alberta Newspapers

Savings are a big part of any budget, and when it comes to long-term savings, you will often hear two main terms: TFSA and RRSP. 

Both a Tax Free Saving Account (TFSA) and Registered Retirement Savings Plan (RRSP) are tax-advantaged ways to save. Adam Weersink, CFP, CIM, and Portfolio Manager with Cox Private Wealth in Lethbridge, shares additional details.

“A TFSA allows for tax-free growth of investments within the account, while RRSPs allow for tax-deferred growth of investments,” Weersink says. “An RRSP provides a tax deduction that can reduce tax payable in the year of contribution, while a TFSA does not.”

He points out that, “It’s important for investors to know that while their name implies they can only be used as a savings account (Tax Free Savings Account), TFSAs can hold other investments and are a great retirement planning tool when used appropriately.”

“Whether to use an RRSP, TFSA, or a combination of both depends on your family’s personal financial situation,” he adds. “There is no one-size-fits-all answer. Working with a qualified Certified Financial Planner (CFP) is the best way to ensure you’re making the right choice for your family.”

A CFP can not only help you decide between a TFSA or RRSP (or if both are appropriate), they will also take into account your long-term goals and current financial position. With knowledge of a large range of tools and products, they can guide you to a more secure financial future through:

• Personalized Advice: A CFP can provide tailored advice based on your age, income, tax bracket, and financial goals.

• Tax Optimization: They can guide you on how to maximize tax benefits, such as deferring RRSP contributions to a year when you’re in a higher tax bracket, thus optimizing your tax savings.

• Investment Strategy: CFPs can help you choose the right investment products within your TFSA or RRSP, ensuring your portfolio aligns with your risk tolerance and long-term objectives.

• Withdrawal Planning: They can assist in planning withdrawals to minimize tax  implications, especially important for RRSPs, where timing can significantly impact your tax liabilities.

• Long-term Planning: A CFP can help integrate your TFSA or RRSP into a broader financial plan, ensuring these accounts contribute effectively to your retirement and other financial goals.

A CFP is a great professional to consult with, whether you are at the start of your career, ready for retirement, or anywhere in between. To learn more about how a TFSA or an RRSP can benefit you, or to learn more about financial planning for yourself and your family, contact a CFP. 

Learn more about Cox Financial Group online at https://coxfinancial.ca/.