What’s the Difference Between a TFSA and an RRSP?

TFSA

No matter how old you are, chances are you’re at least aware of the importance of saving for retirement via a TFSA or an RRSP. Previously, the only option available to you was to open an RRSP account (Registered Retirement Savings Plan). This meant that you could contribute a certain amount of your income each year to your RRSP account and would receive a refund cheque around tax time. It also meant that, as soon as you retired, the government would take back a huge chunk of your earnings, leaving you with considerably less than you thought you had (how much the government takes back from you depends entirely on which tax bracket you retire in – the higher the tax bracket, the more money you lose).

Recently, though, a new retirement savings option was introduced. In 2009, the TFSA (Tax Free Savings Account) was opened up to Canadians as a new way to save without the same restrictions as the RRSP.

Fundamentally, the two are mirror images of each other, but there are some concrete differences that are worth taking into account:

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Common RRSP Myths Debunked

RRSP

For most people under the age of 50, retirement is just a vague pleasant thought looming on the horizon. While they might have set up some form of a Registered Retirement Savings Plan (RRSP) to which they contribute a certain portion of their earnings, chances are they’re not actively giving it much thought (or spending much time researching).

With how shaky the economy has been (and likely will continue to be), it’s always a good idea to plan ahead and make sure you understand all there is to know about your RRSP so you can do your best to prevent any unpleasant surprises down the road.

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