Canadians can save and invest their money in a number of registered plans, such as the Registered Retirement Savings Plan (RRSP), the First Home Savings Account (FHSA) and the Tax-Free Savings Account (TFSA). But what are the differences? How do I choose the right savings plan?
Since we’re talking about personal finances, choosing the right savings plan depends on your personal and financial situation, your needs and your savings goals. You could choose one to plan your retirement (RRSP) or the other to save for short-term projects (TFSA). You could also choose one to save for the purchase of a first home, or even two different plans for the same purpose (HBP and FHSA). Which of these savings plans will give you a tax refund and optimize your tax situation?
In short, let’s explore their differences and learn when to use these savings plans.
First, here’s a comparison chart of the following registered savings plans: RRSPs, FHSAs and TFSAs.
Buying your first home (HBP)
Financing studies (LLP)
Now, here’s more information on each of these registered savings plans.
The Registered Retirement Savings Plan (RRSP) is a registered savings account that allows Canadians to save for their retirement. Income from an RRSP or RRIF will supplement government pensions such as the Quebec Pension Plan (QPP), Canada Pension Plan (CPP) and Old Age Security (OAS).
Income generated in the RRSP is tax-free as long as the funds remain in the plan.
RRSP contributions are eligible for a tax refund. But also to access or increase the amounts received from social programs such as child allowances and the Guaranteed Income Supplement (GIS).
The year you turn 71 (at the latest), your RRSP must be transferred to an RRIF (Registered Retirement Income Fund). RRSP and RRIF withdrawals are taxable. However, your tax rate in retirement should be lower than your tax rate when you’re in the workforce.
RRSPs can also be used to buy a first home or to go back to school:
Here are the key elements of an RRSP:
To find out more about RRSPs, such as eligibility criteria and contribution room, consult the following guide: “The Registered Retirement Savings Plan (RRSP): Everything you need to know “
The First Home Savings Account (FHSA) was introduced in Canada in 2023 to help Canadians enter the real estate market. It offers tax-sheltered savings, tax-deductible contributions (like RRSPs) and tax-free withdrawals (like TFSAs).
The contribution room is $8,000 per year, for a lifetime maximum of $40,000. Unlike the HBP (RRSP), FHSA withdrawals are not restricted. In fact, the entire FHSA balance (contributions and returns) can be used to purchase a first qualifying home.
Here are the key elements of the FHSA:
To find out more about the FHSA, such as eligibility criteria and withdrawal rules, consult the following guide: “The FHSA: Everything you need to know “
The Tax-Free Savings Account (TFSA) is a registered savings account that allows Canadians aged 18 and over to contribute money, generate income and make withdrawals tax-free.
This savings plan was introduced by the federal government in 2009. The annual limit varies from year to year. In 2024, the contribution room is $7,000 and the lifetime limit is $95,000. Finally, investment income, such as capital gains, dividends and interest income, is not taxable.
Here are the key elements of the TFSA :
To learn more about the TFSA, such as eligibility criteria and contribution room, consult the following guide: “The Tax-Free Savings Account (TFSA): Everything you need to know “
There’s no single best option, because all 3 savings plans have their own objectives and advantages. Of course, for some objectives, the plans overlap. For example, to buy your first home, you can use the FHSA and the HBP (RRSP). Another example: when it comes to retirement planning, RRSPs and TFSAs can be used depending on your situation and retirement goals.
Ideally, the best option for an individual is to invest in all 3 plans: RRSP, FHSA and TFSA. Provided you’re not already an owner, of course (in which case, you can eliminate the FHSA directly).
That said, who really has the savings capacity to be able to maximize all 3 registered savings plans at the same time? In 2024, we will need to save:
That’s why you need to choose a savings strategy based on your personal and financial situation and your savings goals. Consider the tax advantages of the 3 plans, your eligibility for the plans (are you 18? do you already own your home?), your marginal tax rate (is the tax refund low or high?), the duration of your savings (short-term or long-term savings?) and many other factors.
Registered savings plans, such as RRSPs, FHSAs and TFSAs, are not investments. The latter are savings accounts in which you can invest.
Eligible investments include:
These types of investments are offered by chartered banks, credit unions, trust companies and insurance companies.
They are also offered by online brokers (brokerage platforms) such as National Bank Direct Brokerage, Desjardins Online Brokerage (Disnat), CIBC Investor’s Edge, Questrade, Qtrade and Wealthsimple.
Whatever your goal, whether short-term (travel, car, renovations) or long-term (retirement savings), having a combination of savings plans is often the best option. Given the annual limits and tax advantages of the savings plans, you need to find out about the advantages and disadvantages to be able to make an informed choice.
If necessary, don’t hesitate to make an appointment with a professional financial advisor. They can analyze your situation and help you make the right choice, based on your personal circumstances and savings goals.
For more information on these 3 registered savings plans, consult the following guides:
Here are answers to the most frequently asked questions about RRSPs, FHSAs and TFSAs.
The TFSA (Tax-Free Savings Account) and the FHSA (First Home Savings Account) are two different registered savings plans. First, the TFSA is a tax-sheltered savings account for Canadians. Contributions are not tax-deductible and withdrawals are not taxable. The contribution limit for 2024 is $7,000. On the other end, FHSA aims to promote home ownership. Contributions are tax-deductible and withdrawals are tax-free for the purchase of a qualifying home. It allows you to save $8,000 a year tax-free, up to a lifetime maximum of $40,000.
Yes. If you have already accumulated savings in your RRSP and wish to use the FHSA, you can transfer them from your RRSP to an FHSA. Of course, you must comply with the FHSA contribution limits. Since the tax deductions were already taken when you contributed to your RRSP, you won’t have to take any new tax deductions when you transfer the funds to the FHSA. However, unlike the HBP (RRSP), amounts used to purchase a first eligible property do not have to be repaid into the savings plan.
Yes, it is possible to combine the HBP (RRSP) and the FHSA for the purchase of a first eligible property. Be sure to check the rules for each plan. The maximum amount that can be used under the HBP is $35,000 (or $70,000 for a couple), to be repaid over a 15-year period. For its part, the FHSA can be withdrawn in full, i.e. the contribution room of $40,000 (or $80,000 for a couple) and the return and amounts withdrawn do not have to be paid back into the plan.
Of course. The TFSA (Tax-Free Savings Account) and the FHSA (First Home Savings Account) are two different savings accounts. The former can be used for a variety of short-, medium- and long-term objectives. The second is used for the purchase of a first qualifying home. If you have the capacity to save in both, TFSA contribution room is $7,000 in 2024 and FHSA contribution room is $8,000 per year (to a lifetime maximum of $40,000).
The FHSA has been available in Canada since April 1, 2023. However, not all financial institutions currently offer the FHSA. Check with your bank or credit union, or consult the list in this article: The FHSA: Everything you need to know (“Which bank offers the FHSA?” section).
Yes, FHSA contributions are tax deductible, just like RRSPs. What’s more, tax deductions can be carried forward into the future, for example, when your marginal tax rate is higher.
Savings are here:
