Purpose
TFSA
RRSP
Main purpose
Meet your savings needs throughout your life (not only after retirement)
Mainly meet retirement needs
Tax treatment
Both savings vehicles offer tax advantages but there are some minor differences between them
Eligibility
Minimum age
18
None
Maximum age
71
Maturity date (termination)
December 31 of the year in which you turn 71 years of age1
Top
Contribution room
CELI
REER
Annual contribution limit
$5,000
$20,000 (2008) $21,000 (2009)
Contribution limit as a % of earned income
None Your savings grow in a tax-free environment regardless of your annual income as long as you do not exceed the annual contribution limit.
18% (Subject to the annual contribution limit)
Excess contributions
Penalty of 1% per month
Penalty of 1% per month (Up to $2,000 in excess contributions are allowed without penalty)
Unused contribution room carried forward
From year to year
Contribution room restored after withdrawals
Starting the following year
Contribution limit indexed
According to the Consumer Price index (CPI), rounded to the nearest $500
Based on the increase in the Average Industrial Wage (AIW)
Spousal contributions
No, but one spouse can give the other spouse the funds needed for his/her contribution without being subject to income attribution rules
Transfer to spouse in the event of relationship breakdown / death
Without affecting contribution room
Tax rules
Tax deductible contributions
TFSA contributions cannot be deducted from income.
Taxable income
Taxable withdrawal
You can withdraw2 funds from your TFSA at any time for any purpose without having to pay tax on the withdrawals.
You can withdraw2 funds from your RRSP at any time for any purpose but you have to pay tax on the withdrawals.
Minimum withdrawal
After you convert your RRSP into a RRIF
Impact on income-tested government retirement benefits and tax credits (clawback of Old Age Security and Guaranteed Income Supplement)
Does not reduce benefits or tax credits.
May reduce benefits and tax credits
Tax impact in the event of death
If transferred to the spouse. The value of the TFSA is never taxable.
- If the TFSA is left to a person other than the spouse, the TFSA will be terminated and the investments will become non-registered assets. - The income generated by those non-registered assets will be taxable.
If rolled over to the spouse
1 At that point, you have to withdraw the amounts accumulated in your RRSP and invest them in a Registered Retirement Income Fund. 2 Subject to the terms and conditions applicable to the selected investments.
The income earned in your TFSA is tax free, which is not the case for an non-registered account. The table below shows the advantages of a TFSA versus a non-registered account.
Example:
Non-registered account
$100
20
5.50%
26.00%
0,00%
$36,679
$43,078
$24,000
$12,679
$19,078
You would pay $6,399 less in taxes with a TFSA ($19,078 - $12,679 = $6,399)
The data shown here are assumptions only. The calculations are provided as examples and are intended only to illustrate the impact of lower taxes on a TFSA over the investment period under identical conditions. The real returns on your investments may be higher or lower than the assumptions presented and will depend in particular on the investment type and time. The data shown do not create any legal or contractual obligations for National Bank and its subsidiaries.
1 Effective annual rate of return compounded annually thereafter
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