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How do you choose the most tax-efficient savings account for you? This article compares these three investment plans to help you make the right choice.
Which of the following savings accounts is the most advantageous for you?
The answer obviously varies depends on one’s unique situation. Still, it’s important to understand the differences between each plan.
A Registered Retirement Savings Plan (RRSP) is a type of savings account specially designed to help Canadians save for their retirement. It comes with tax advantages that let you save and grow your money now, while deducting your RRSP contributions from your current tax bill. When it’s time to take your money out, you’ll pay taxes on the withdrawal amount, but likely at a much lower rate than what you’d pay today.
Want to know more about RRSP contribution limits? Check out this article:
A Tax-Free Savings Account (TFSA) is a registered investment account that’s designed to help Canadians save money, while holding qualified investments. Canadians with a valid Social Insurance Number (SIN) and who have reached the age of majority (or older), according to their province, can have a TFSA. Any income earned within a TFSA, including interest, dividends and capital gains is tax-free. What’s more, you won’t have to pay tax on any withdrawals you make from a TFSA.
Why open a TFSA? The following article outlines some of the benefits:
The Tax-Free First Home Savings Account (FHSA) is a registered investment account that allows Canadian residents who have reached the age of majority (or older), according to their province, to contribute up to $40,000 (with an annual contribution limit of $8,000) to buy their first home in Canada. Like an RRSP, contributions are tax-deductible and, like a TFSA, there’s no tax on qualifying withdrawals.
Curious about this new savings account? This article answers several questions:
The Tax-Free First Home Savings Account – What you need to know
For more, consult the comparison table below:
TFSA |
RRSP |
FHSA |
|
|---|---|---|---|
| General | |||
| Purpose | General Savings | Retirement savings | First home purchase savings |
| Account opening criteria | |||
| Age (minimum) | Age of majority | Age of majority | Age of majority |
| Canadian residency requirement | Yes | Yes | Yes |
| Other requirements | Valid Social Insurance Number | Have earned income/file Canadian tax return | Meet definition of first-time home buyer |
| Account closing criteria | |||
| Latest account closing date | Until December 31 of the year following the year of death | December 31 of year turning age 71 | December 31 of the year in which earliest of the following occurs: (1) Holder turns age 71; (2) 15 years after account opening; and (3) year after first qualifying draw made |
| Tax treatment | |||
| Tax-deductible contributions | No | Yes | Yes, unless funds are transferred directly from an RRSP |
| Investment growth | Tax-free | Tax-deferred | Tax-free (some exceptions apply) |
| Administration fee deductibility | No | No | No |
| On death | No tax implications to deceased holder or beneficiaries | Fair market value of account taxable to deceased holder (some exceptions apply) | Fair market value of account taxable to beneficiaries (some exceptions apply) |
| Contributing funds | |||
| Base annual contribution limit | Indexed for inflation each year ($7,000 for 2025) | 18% of previous year’s earned income up to RRSP dollar limit ($32,490 for 2025) | $8,000 |
| Lifetime contribution limit | None | None | $40,000 |
| Contribution deadline | December 31 | 60 days after year end | December 31 |
| Carry-forward unused contribution limit | Yes | Yes | Yes |
Carry-forward deadline |
Indefinitely | December 31 of year turning 71 | End of Maximum Participation Period |
Carry-forward limit |
TFSA contribution room (accumulated) | RRSP contribution limit (accumulated) | $8,000 |
| Over-contribution penalty | 1% per month on excess | 1% per month on excess | 1% per month on excess |
| Withdrawing funds | |||
| Tax-free withdrawals | Yes | No, unless through Home Buyers Plan or Lifetime Learning Plan | Yes - if for qualifying first home purchase |
| Contribution room reinstated on withdrawal | Yes, in year following year of withdrawal | No | No |
Need more information? An advisor can help. If you’re not already working with an advisor, this article will help you choose the best one:
Information contained in this article is provided for information purposes only. It is not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.
SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund’s prospectus. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Sun Life Assurance Company of Canada is the issuer of accumulation annuities (insurance GICs), payout annuities and individual variable annuity contracts (segregated fund contracts). Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Sun Life Financial Trust Inc. is the issuer of guaranteed investment certificates.
Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc. all of which are members of the Sun Life group of companies.
