With the launch of the First Home Savings Account (FHSA), there’s now one more registered investment plan to consider when determining which one(s) can best help you meet your savings and retirement goals.
While the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) and FHSA all offer tax benefits, there are some key differences that can help you choose what’s right for you.
Here are some answers to some of the top questions about the features and tax treatments of each plan, plus contribution and withdrawal considerations.
| Feature | 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 (you are charged taxes when you withdraw funds) | 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 (age of majority in your province or territory) | 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 or territory) 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 (added to taxable income the year you take the money out; 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? | $7,000 for 2024 plus your unused contribution room and any amounts you’ve withdrawn from previous years | 18 percent of previous year’s earned income, less any pension adjustment, up to maximum annual limit ($30,780 for 2023) | $8,000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 |
This article was originally published on rbcroyalbank.com .
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