When examining your saving choices, it’s important to note there is no single or absolute answer that fits everyone’s situation. Instead, there are many considerations that may make a particular savings vehicle (or a combination of several vehicles) more suitable for you. In making a decision about where to save, remember to give some thought to your personal goals and objectives.
Here are the features of three common savings vehicles along with some considerations for you to consider:
| TFSA | RRSP | Savings account | |
| What is it? | A registered investment plan where your investment earnings and withdrawals are tax-free. | A registered investment plan where your investment earnings are tax-deferred and your contributions are tax-deductible. | An account with interest paid on every dollar, calculated daily and paid monthly. |
| How can I use it? | Save for anything you want — short or long-term goals | Save for retirement | Save for anything you want |
| Who owns the account? | Individual only | Individual only (Learn about Spousal RRSPs) | Individual or joint |
| Tax Treatment | |||
| Tax-deductible contributions? | No | Yes | No |
| Savings grow tax-free or tax-deferred? | Tax-free (never taxed) | Tax-deferred (taxed upon withdrawal) | The interest you earn is taxable |
| Taxed withdrawals? | Tax-free (never taxed) | Taxed (added to taxable income the year the money is withdrawn) | No |
| Contributions | |||
| Annual contribution limits? | $6,000 for 2022 (subject to change) plus previous years’ unused contribution room | 18% of the previous year’s earned income, less any pension adjustment, up to the maximum annual contribution limit | No limit |
| Over-contribution penalty tax? | Yes, 1% per month on excess contributions | Yes, 1% per month on excess contributions if you exceed the $2,000 lifetime over-contribution amount | No |
| Carry-forward of unused contribution room? | Yes, indefinitely | Yes, until the year you turn 71 | Not applicable/no limit |
| Need earned income to contribute? | No | Yes | No |
| Ability to contribute after age 71? | Yes | No, must convert to an RRIF or annuity by the end of the year you turn 71, or close the plan | Yes |
| Withdrawals | |||
| Withdraw savings for any reason? | Yes, although timing depends on your investments | Yes, but taxes are withheld at the time of withdrawal (unless participating in the Home Buyer’s Plan or Lifelong Learning Plan) | Yes, at any time |
| Withdrawals affect contribution room? | Yes, withdrawal amounts are added to the contribution room the following year | No, contributions are based on the previous year’s earned income | No |
| Withdrawals affect government benefits? | No | Yes | No |
There isn’t a one-size-fits-all answer in deciding how you want to save. It’s a personal decision you should make based on your goals, circumstances, tax rates and personal habits. If you need help with the decision-making process, speak to a dedicated RBC Healthcare Specialist, who can help you examine your options.
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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
