When to invest in a TFSA versus an RRSP

3 minute read

You may already use an RRSP to invest for the future. But did you know there’s another option? The Tax-Free Savings Account, or TFSA can be a great complement to your RRSP. The challenge is deciding when it’s best to choose a TFSA over an RRSP. Here are some general guidelines.



If you want easy and frequent access to your money, open a TFSA. You’ll be able to withdraw funds tax-free at any time and re-contribute the same amount in the next calendar year. Keep your RRSP for long-term retirement savings.

If you earn a low income, you may benefit more from the tax-free growth and withdrawal flexibility of a TFSA than from the modest tax deduction of an RRSP.

When you are just starting your career invest in a TFSA before an RRSP. Over the years you’ll accumulate RRSP contribution room that you can take advantage of when your income is higher and when the RRSP tax deduction has a bigger impact.

If you need to borrow money, a TFSA can be used as security for a loan. Just remember, the interest on money borrowed to invest in a TFSA is not tax deductible.

If you are saving for a house or education, a TFSA may be a better option than withdrawing RRSP’s under the Home Buyers Plan. That’s because TFSA withdrawals don’t have to be paid back, money doesn’t have to be kept in the account for 90 days before withdrawing, and if you decide to use your money for another purpose, you don’t have to pay tax.

If you have interest-bearing investments, like GICs, money market mutual funds*, term deposits, or bonds*, which are taxed at higher rates, you may want to consider investing them in a TFSA where they are tax sheltered.

If you own high risk/high return investments, a TFSA might be better than an RRSP or non-registered account. If your $5K grows to $50K it could be withdrawn tax-free. The downside — you can’t claim a capital loss if your investments lose value.

If you have a pension plan at work and therefore have limited opportunities to contribute to an RRSP, use a TFSA to augment your retirement savings.

If you’ll be retiring in 10-20 years, use a TFSA to complement your RRSP and grow your nest egg even more.

If you are maximizing your RRSP contributions, also maximize your TFSA before investing in a non-registered plan, so your money can grow tax-free.

In retirement, if you have to take out more from your RRIF than you need, due to required minimum withdrawals, invest the excess in a TFSA, where it can grow tax-free until you need it later.

These are all only generalizations. Your situation is unique. If you want to find out how to use the Tax-Free Savings Accounts to your advantage, contact a member of our Wealth and Investment team. They can provide you with an expert’s perspective and help you invest in your own Tax-Free Savings Account.

* Mutual funds are offered through Qtrade Asset Management (a tradename of Credential Asset Management Inc). Mutual funds and other securities are offered through Qtrade Advisor, a division of Credential Qtrade Securities Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.

Paul Arsenault

Paul Aresenault, CFP®, PFP®, RIS, CKA® is Director, Wealth and Investments
Branch Compliance Manager, Qtrade Asset Management Inc.

Paul has a wealth of experience helping members achieve their goals as a CERTIFIED FINANCIAL PLANNER® professional. He coaches Kindred’s Financial Planning Team and acts as our compliance manager for Qtrade Asset Management Inc. In addition, Paul is passionate about sharing his knowledge around RDSPs with members and organizations.

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