My finances 5 min

​How to choose between an RRSP and a TFSA

Where should you invest your hard-earned cash? Are you hesitating between a registered retirement savings plan (RRSP) and tax-free savings account (TFSA)? Here, we untangle these two savings plans to help you make the right choice.

By Fonds de solidarité FTQ

Let's say you have a certain amount of money that you'd like to invest. You're faced with a dilemma: should you place your funds in an RRSP or a TFSA? Is one better than the other?

While there's no single right answer, you should first consider what you plan to do with your money. This will help you determine which savings plan best suits your needs. To get you started, here are the fundamental differences between an RRSP and a TFSA.

Which one maximizes your tax break?

With both an RRSP and a TFSA, the goal is to save in the smartest way possible while minimizing tax impacts.

An RRSP is a retirement savings plan that allows you to defer tax payments on the amounts you invest. As soon as you cash in your RRSP, the full amount is taxed as income.

A TFSA, as the name says, is a savings account that is tax-free. Since contributions to a TFSA are not tax-deductible, the return on your investment is not taxable.

Which one offers more flexibility?

If you're saving up to buy a house or undertake home renovations, the TFSA is a good option, as it gives you easy access to your money. What's more, any unused contribution room can be carried forward indefinitely.

You can also use an RRSP to save up for your first house as part of the Home Buyers' Plan (HBP). With the HBP, each spouse can withdraw up to $60,000 from their RRSPs to purchase property. It's a little like loaning money to yourself. However, to avoid paying taxes on the amount withdrawn, you need to put money back into your RRSP. Since you have 15 years to repay what you owe, your annual repayment must be at least 1/15 of the total amount withdrawn. For example, if you withdraw $25,000 from your RRSP, you must repay at least $1,666.67 per year for 15 years.

What are the contribution limits?

If you are aged 18 or over, you can contribute to a TFSA. The 2024 annual contribution limit is $7,000. However, your contribution room is cumulative, which means that you can invest the sum of all permissible annual contributions since the program's creation in 2009. For example, if you turned 18 before 2009 and open your first TFSA in 2024, your cumulative limit is $95,000. It's up to you to make the most of it!

To contribute to an RRSP, you must be a taxpayer with an eligible income. Your annual contribution limit corresponds to 18 percent of your income from the preceding year, up to a maximum of $31,560 in 2024. All unused contributions are carried forward.

Keep in mind, however, that any amount exceeding your RRSP or TFSA contribution limit will be taxed at 1 percent per month.

Which one gives the highest return?

The RRSP and TFSA permit the same types of investments, including GICs, bonds, shares, and mutual funds.

Most experts agree that as your income increases, the RRSP becomes the more fruitful option. As mentioned above, it's a question of tax deductions. That's why, for the vast majority of the population, the RRSP is still the best way to save up for retirement, a house or condo, and other large-scale projects.

If, like the RRSP+ offered by the Fonds, your RRSP gives you an additional 30 percent in tax savings1, you have an even stronger savings tool in your belt. Why? Because it allows you to save even more while enjoying the same benefits.

How much more? Quickly calculate your tax savings: if you invest $5,000 in the RRSP+ at the Fonds, you get a base deduction of $1,8052 as well as an additional $1,500 in tax savings.

In other words, $5,000 in an RRSP+ costs you only $1,695 as opposed to $3,195 with a regular RRSP.


Ultimately, your decision depends on your savings goal and time frame. The TFSA with FlexiFonds makes it easier for you to save and make your plans a reality  But one thing is certain: if you're considering an RRSP, the RRSP+ at the Fonds could be your best option. Not only will you save more than with an ordinary RRSP, you'll also contribute to Quebec's economy.

Keep your savings local

The TFSA with FlexiFonds not only helps you save for important projects, but also allows you to support the Québec economy thanks to mutual funds that invest primarily here.


Was this article useful ?

Legal Notes
The acquisition of shares of the Fonds de solidarité FTQ may give rise to labour-sponsored fund tax credits. The tax credits amount to 30%, namely 15% at the Quebec level and 15% at the federal level, and are limited to $1,500 per fiscal year, which represents a $5,000 purchase of shares of the Fonds de solidarité FTQ. On March 1, 2024, The Government of Québec announced in Information Bulletin 2024-3 that tax legislation would be amended to postpone by three years the rule providing that the tax credit would be available only to individuals whose taxable income for a given taxation year was below the highest tax rate. Please note that this postponement may be subject to legislative changes.
Please read the prospectus before buying Fonds de solidarité FTQ shares. Copies of the prospectus may be obtained on the Website, from a local representative or at the offices of the Fonds de solidarité FTQ. The shares of the Fonds de solidarité FTQ are not guaranteed, their value changes and past performance may not be repeated.
Example based on the 2024 taxation year for an individual with a taxable income of $65,000 and a marginal tax rate of 36.1%. The amounts calculated are estimates and may vary depending on your tax status.

About FlexiFonds de solidarité FTQ
FlexiFonds de solidarité FTQ inc., a wholly owned subsidiary of the Fonds de solidarité FTQ, is a mutual fund dealer duly registered with the Autorité des marchés financiers. FlexiFonds de solidarité inc. acts as the principal distributor of the FlexiFonds funds and does not distribute the units of any other mutual fund.