Published November 5, 2024 • 4 Min Read
TLDR
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With three main investment accounts options available, how do you choose the right one for your financial goals?
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Each plan comes with different maximum contribution amounts, deadline dates and tax implications.
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This quick check list will help you determine which registered plan — or plans — best serve your goals.
Which of the three main registered investments accounts can best help you achieve your personal savings and investment goals?
Whether you need to fund a new appliance, purchase a home or save for retirement, investing can help you grow your wealth and achieve your financial goals faster. Here are Canada’s three main registered investment accounts that allow you to do just that:
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The Tax-Free Savings Account (TFSA) is a flexible registered investment plan that lets Canadians save for any savings goal they have — be it new furniture, a car purchase, a vacation, retirement income or a combination of things.
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The Registered Retirement Savings Plan (RRSP) is a tax-deferred investment plan that helps Canadians save for their retirement.
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The First Home Savings Account (FHSA) was launched on April 1, 2023, introducing a third registered plan to help Canadians achieve savings, retirement and home ownership goals.
While all three investment accounts offer tax benefits, there are some key differences to be aware of. From each plan’s tax considerations to rules about contributions and withdrawals, here’s everything you need to know about TFSAs, RRSPs and FHSAs.
| Feature | TFSA | RRSP | FHSA |
|---|---|---|---|
| What is it? | A Tax-Free Savings Account is a powerful registered investment account that allows you to save for any big-ticket item or goal. Plus, you can withdraw your money anytime – tax-free. Explore TFSAs | A registered investment account that helps you save for retirement, and it comes with tax advantages – the money you save grows tax-free and it may help you lower your tax bill, by allowing you to deduct RRSP contributions from your taxable income Explore RRSPs | A registered plan that can help you save for your first home tax- free. Explore FHSAs |
| Who can open one? | Canadian residents aged 18 or older with a Social Insurance Number (SIN) | Anyone who earned income and files an income tax return in Canada and who’s under the age of 71 | Canadian residents between the ages of 18-71, with a Social Insurance Number (SIN), who didn’t live in a home that you or your spouse/common partner owned in the last four 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 (added to taxable income the year you take out the money; a withholding tax will also apply to early withdrawals) | Tax-free if you use funds for a qualifying first home |
| How much can I contribute each year? | You can contribute $7,000 plus any unused contribution room and any previous withdrawn amounts. Every year the government introduces new yearly contribution limits | You can contribute 18% of previous year’s earned income up to $31,560, and unused portions are carried forward to the following year | You can contribute $8,000, and unused portions can be carried forward to the following year. You also have a lifetime contribution limit of $40,000 |
| What are the contribution deadlines? | The contribution deadline for this year is December 31. If you haven’t contributed up to your limit in previous years, you can also make catch-up contributions | The deadline for 2024 RRSP contributions is March 1, 2025. If you make contributions after this date, you’ll have to claim them as deductions on your 2025 tax return | The deadline is December 31 for the 2024 tax year, and you must contribute before that date to have your contribution amount deducted from your 2024 taxable income |
Visit Compare TFSA vs RRSP vs FHSA for more answers, including information on the types of investments that can be held in each account.
Book an appointment with your advisor for assistance in choosing your best options.
Financial planning services and investment advice are provided by Royal Mutual Funds Inc. (RMFI). RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec.” We’ll keep the “things lawyers wanted you to know.
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.
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