A version of this story appeared on The Inspired Investor on March 22, 2023.
Understanding the differences between registered investment plans can help you decide how they can help you meet your goals.
With the launch of the First Home Savings Account (FHSA), there’s now one more registered investment plan to consider when determining how to meet your savings and retirement goals.
While Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs) and FHSAs all offer tax benefits, knowing some key differences may help you choose which plan(s) fits your goals.
Below, you’ll find answers to some of the top questions about the features and tax treatments of each plan, plus contribution and withdrawal considerations.
| Q: | TFSA | RRSP | FHSA |
|---|---|---|---|
| What is it? | A registered plan where your investment earnings and withdrawals are tax-free | A registered plan where your contributions are tax-deductible (up to your personal deduction limit) and investment earnings are tax-deferred | A new registered plan designed to help first-time homebuyers. Your contributions are tax-deductible, and investment earnings and withdrawals are tax-free if used to purchase your first home. |
| Who can open one? | Canadian residents with a Social Insurance Number (SIN) who are at least 18 or 19 (or the age of majority in your province) | Canadian residents with a Social Insurance Number (SIN) who are under age 71, have earned income and file a tax return in Canada | Canadian residents with a Social Insurance Number (SIN) who are at least age 18 (and no less than the age of majority in your province) and under age 71, and you and/or your spouse or common-law partner have not owned a home where you lived in the current calendar year or at any time in the preceding four calendar years |
| Are contributions tax-deductible? | No | Yes (up to your personal deduction limit) | Yes (up to the annual and lifetime limits) |
| Do my savings grow tax-free or tax-deferred? | Tax-free | Tax-deferred — you’re charged taxes when you withdraw funds Withdrawals are added to taxable income the year you take the money out; a withholding tax will also apply to early withdrawals | Tax-free as long as you use funds for a qualifying first home |
| How much can I contribute each year? | $6,500 for 2023, plus your unused contribution room and any amounts you’ve withdrawn from previous years | 18% of the previous year’s earned income, less any pension adjustment, up to a maximum annual limit ($30,780 for 2023) | $8,000 annually, plus up to $8,000 of your unused contribution room, up to a maximum lifetime limit of $40,000 |
Visit Compare TFSA vs RRSP vs FHSA for more answers, including information on the types of investments that can be held in each account.
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.
