A Student’s Guide to TFSAs and RRSPs


Does your savings plan involve your childhood piggybank?

It might be time for an upgrade.

Saving for the future is a big priority for students and grads.

Whether you’re saving for an exotic trip, a wedding or a rainy day, knowing your options can help you realize your short- and long-term financial goals.

There are two common options for Canadian savers: the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP).

Contributing to both is a guaranteed way to build a solid nest egg, but that can be tricky to afford as a student or new grad.

Understanding TFSA and RRSP basics can be a great first step in building your financial literacy – a lifelong skill.

What is a TFSA?

A TFSA is a general-purpose savings account that allows you save for any financial aspiration without being taxed on your investment earnings or fund withdrawals. A TFSA is a flexible option for Canadian residents 18 and older who are looking for an accessible way to realize their goals.

If you have a TFSA, you are able to contribute up to a set dollar limit each calendar year: the annual limit is based on the inflation rate and is standard across all institutions. As of January 2013, the annual contribution limit is $5,500.

However, any unused room from previous years can be carried forward – you can also re-contribute funds withdrawn throughout the year back into your account the following calendar year or later.

Just remember: over-contributing to your TFSA may result in a 1% per month tax on your excess contribution. Your TFSA contribution room can be tracked through the Canadian Revenue Agency (CRA).

If you’re interested in diversifying your TFSA, you can contribute mutual funds, GICs, stocks and other types of investments into the account. You can also hold more than one TFSA at a time (but the total amount held within each account cannot be more than your available contribution room).

What is an RRSP?

An RRSP is a personal savings plan most commonly used for long-term financial planning. It is a government-registered, tax-sheltered option for income-earning Canadians who want to start preparing for the future.

If you have an RRSP, you are able to contribute up to a set dollar amount each calendar year. The amount is the lower of: 18% of your earned income from the previous year, or the maximum contribution limit for that taxation year ($24,270 in 2014).

When you contribute to your RRSP, you can deduct the amount from your taxable income. When you withdraw funds however, the amount is added to your taxable income and must be filed with your taxes.

For those who have a hard time staying on track with their savings plan, this arrangement can keep you focused and deter any unnecessary spending.

With that said, there are two ways to withdraw tax-free funds from your RRSP, and both are meant to help with two major financial goals: purchasing a house (Home Buyer’s Plan) or continuing your education (Lifelong Learning Plan). Both the HBP and LLP have their own borrowing rules and regulations – click here to learn more about these special withdrawal programs.

Your RRSP is an investment portfolio, which means it can contain a variety of investments, including treasury bills, GICs, mutual funds, bonds and equities. There are also different types of RRSPs, including spousal RRSP and group RRSP. Your employer may offer matching programs to RRSP contributions, a great perk to consider when weighing your options.

Which account should I choose?


Who: 18 and over with a valid Canadian Social Insurance Number (SIN)

What: A tax-free savings vehicle

When: Lifetime

Where: Bank, credit union, trust or insurance company


Who: Anyone who earns an income and files an income tax return

What: A tax-sheltered savings vehicle

When: End of the year you turn 71

Where: Bank, credit union, trust or insurance company

Both accounts shelter you from tax as long as your investments are held within the account.

If your income (and tax rate) is greater now than you anticipate it being when you retire, opt for an RRSP. Your original contributions will generally yield a better tax rebate than if you were to contribute/withdraw funds in a lower tax bracket.

If your income is lower now than you anticipate it being when you retire, opt for TFSA. It’s more flexible than an RRSP and doesn’t impact your taxes or your eligibility for federal benefits or credits if you need to access your savings.

Of course, knowing which tax bracket you’ll be in as you get older can be tough to predict.

That’s why meeting with a personal advisor at your bank or other financial institution is the way to go – they’ll walk you through your options and help you find a solution that’s the best fit for you.

How are you planning for the future, Gen Y?

About the author

Michelle Sammut is a Content, Marketing and Community Specialist at TalentEgg. Since graduating from the University of Victoria in 2011, Michelle has worked in a variety of fields, from non-profit to digital media. Growing up on the west coast, Michelle has accumulated an impressive collection of rainwear. Follow her on Twitter or connect with her on LinkedIn.