3 Minutes - Article
So, what the heck is an RRSP and TFSA? Why should I care?
Great question! It almost seems like speaking in code words some days. We get it, financial jargon is confusing!
Let’s break it down:
What is RRSP? This is your ‘Registered Retirement Savings Plan’
Okay, what does it do? Think of it like a piggy bank for your future—save now, and you might even get some tax breaks.
If this is something that you’re interested in, you must first sign up and register with the CRA (Canada Revenue Agency). You can also set this up as a payment at your bank. They can guide you to know the amount of retirement savings that works for your budget.
Remember you oversee this account for your future self! You can also stop contributing at any time if something comes up. But there are restrictions to access this type of savings after you put money into the plan. It is a registered retirement savings plan and is not meant for short-term saving goals.
Okay, now what is TFSA? This is called a ‘Tax Free Savings Account’
What does this one do? Think of this one as the cool cousin of the RRSP—put your money in, and it grows without tax getting in the way!
For this type of account, you must also be signed up and registered by the CRA (Canada Revenue Agency) You can contribute any amount you’d like to! Your bank can also create this type of account for you.
So, what's the difference between them? We’re glad you asked! Let’s put this one into bullet points:
RRSP (Registered Retirement Savings Plan)
- Tax Break Now: You get a tax deduction when you put money in.
- Tax Later: This money becomes taxed when you take the money out (usually when you're retired).
- Goal: Save for retirement.
TFSA (Tax-Free Savings Account)
- No Tax Break Now: You don’t get a tax deduction upfront.
- Tax-Free Growth: Your money grows over time without being taxed.
- Goal: Save for anything—no timelines required.
It’s wise to save for retirement, if you don’t you’ll only have the bare minimum to work with. No matter how small you contribute over time it adds up, go for an RRSP. If you want your cash to grow tax-free and need flexibility for larger savings, a TFSA is your best bet! Ready to start?