Whether you’re envisioning your first home, building a nest egg for retirement, or planning the wedding of your dreams, you’ll probably need to amp up your savings game to get there.

While the registered retirement savings plan (RRSP), Tax-Free Savings Account (TFSA), and first home savings account (FHSA) can all turbocharge your way to achieving these goals, there are some key differences you should understand to help you plan before you file your taxes.

Key Takeaways
  1. The money you stash away in a RRSP isn’t taxed until you withdraw it during retirement; just be mindful of your contribution limit to avoid a 1% penalty per month on the excess amount.
  2. The TFSA is a financial playground and savings jackpot in one: your money grows tax-free here, and withdrawals are tax-free too.
  3. If you’ve been dreaming of that first home, the FHSA is a great savings tool: You’ve got 15 years to make that dream home purchase, or else those funds will be looking for a new home in your RRSP or facing taxation.

Here’s an at-a-glance view of three of Canada’s go-to savings accounts:





Primary purpose

Save for retirement

Flexible savings for various goals

First-time home ownership

Contribution limits

18% of prior year’s income, or annual limit of $31,560 for 2024

Annual contribution limit of $7,000 in 2024; accumulates if not used

Annual and lifetime limits; up to $8,000 per year, $40,000 over lifetime

Penalty for over-contribution

1% penalty per month on amounts exceeding the limit by $2,000

1% penalty per month on excess contributions

1% penalty on excess contributions; cumulative annual limits apply


Contributions are tax-deductible

Contributions are not tax-deductible

Contributions are tax-deductible for the year

Tax on withdrawals

Taxed as income upon withdrawal, plus 5% to 30% withholding tax

Tax-free withdrawals

Tax-free withdrawals for a home purchase; taxed if not used for this purpose

Withdrawal flexibility

Limited flexibility; must be used for Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP) to avoid taxes

Highly flexible; can withdraw any time for any reason

Limited flexibility; must be used for a home purchase within 15 years. If no home purchase is made, it must be transferred to an RRSP or RRIF or withdraw the funds and pay tax

Now that you’ve become acquainted with the financial firepower of RRSPs, FHSAs, and TFSAs, let’s find out how to make the most of these savings superheroes. We take a deeper dive below into the pros and cons of these three accounts.

What is a RRSP?

A RRSP is a tax-advantaged account designed primarily to help Canadians save for retirement. Contributions made to a RRSP are tax-deductible, meaning you can reduce the amount of income tax you pay in the year you contribute while your savings continue to grow. When you withdraw money from your RRSP during retirement, it is taxed as income, but at a lower rate since retirees often have lower incomes than they did during their working years.

Your RRSP reaches maturity on the last day of the calendar year you turn 71. While you can withdraw those funds earlier, you will lose your tax advantage as a result. The exception is if your withdrawal is used to finance a home purchase or for full-time education.

Are RRSP contributions tax-deductible?

Your RRSP contributions are tax-deductible—meaning you get a tax break for stashing away your hard-earned money. You can find your RRSP contribution limit on the notice of assessment you receive from the Canada Revenue Agency (CRA) each year after filing your tax return. This amount is either 18% of your income from the previous year or the annual contribution limit that year ($30,780 for 2023)—whichever is less.

Be careful not to go over this amount. Any RRSP over-contribution will be taxed at 1% per month on amounts exceeding your RRSP deduction limit by $2,000.

You can subtract your RRSP contributions from your income when filing taxes, which will reduce the amount you’re taxed on and subsequently lower your tax bill in any given year.

Are RRSP withdrawals taxed?

Yes. If you withdraw funds from a RRSP before it reaches maturity, you’ll receive a T4RSP slip detailing the amount you withdrew. You’ll have to declare it as income on your tax return and pay taxes on it. This includes a withholding tax that your financial institution will deduct from your funds to pay directly to the government. Depending on where you live and the amount you withdraw, the tax rate will vary for Canadian residents:

  • Up to $5,000: 10% tax (5% if you live in Quebec)
  • Amounts over $5,000 to $15,000: 20% tax (10% in Quebec)
  • Amounts over $15,000: 30% (15% in Quebec)

You may have to pay additional taxes when you declare your funds as income, while Quebec residents will also have to pay provincial tax.

However, there are 2 exceptions in which you can use your RRSP early without penalty. Under the Home Buyers’ Plan, you can make a RRSP withdrawal of up to $35,000 toward buying or building your first home. That amount increases to a total of $70,000 per married or common-law couple toward the same home purchase.

To receive the tax break, you will be required to pay the funds back to your account according to a set schedule. Repayment takes place over a 15-year period, which begins 2 years after the calendar year in which you make the withdrawal.

The second exception is under the Lifelong Learning Plan. This allows you to make a tax-free withdrawal of up to $10,000 per year ($20,000 over your lifetime) to pay for full-time education or training for yourself or your spouse or common-law partner. You’ll have 10 years to pay back the funds, starting 5 years after your first withdrawal.

What is an FHSA?

The First Home Savings Account (FHSA) is a recent addition to the savings party, catering specifically to aspiring first-time homeowners. When comparing the FHSA and TFSA, it’s important to note that while both offer tax benefits, the FHSA is intended exclusively for helping Canadians save for their first home.

How does the FHSA work?

The FHSA can be a great opportunity for first-time homebuyers. It allows lifetime contributions of up to $40,000, with an annual contribution limit of $8,000 by December 31 each year.

You have 15 years to buy a new home using your FHSA, or until your 71st birthday (whichever comes first).

If you don’t buy a new home by the deadline, the funds must be transferred to a RRSP, a registered retirement income fund (RRIF) account, or withdrawn, in which case they’ll be taxed.

Is the FHSA tax-deductible?

Contributions to the FHSA are tax-deductible. That’s where the similarity between an FHSA and a RRSP ends: With an FHSA, any withdrawals you make to purchase a first home will not be taxed, and you won’t need to repay them.

To qualify for this tax break, you must meet the following FHSA requirements:

  • Be a Canadian resident
  • Be between the ages of 18 and 71
  • Be a first-time home buyer
  • Must not have lived in a home owned by your spouse or partner in the four calendar years prior to opening your FHSA, or in the current year

You must file your income tax and benefit return for the year that you opened your first FHSA to let the CRA know that you opened an account. You must do this even if you didn’t contribute to your FHSA or transfer property from your RRSP to your FHSA in that year.

Can I transfer a RRSP to a FHSA?

You can transfer property from your RRSP to your FHSA without any immediate tax consequences, as long as it is a direct transfer.

What’s a direct transfer, you might be thinking? That’s when the institutions that hold your RRSP and FHSA communicate directly with each other to complete the necessary steps. Let’s say you’re looking to do a FHSA transfer to a RRSP. Simply fill out a request form at your institution, sit back, and relax while you let them do all the work! Never withdraw the funds yourself, as they will then be taxable.

What is a TFSA and how does it work?

The Tax-Free Savings Account is a versatile tool for tax-free growth with features such as flexible contribution room and unlimited withdrawals without penalty. Unlike RRSPs, TFSAs aren’t just for retirement. Think of them as your financial Swiss Army knife—you can use your TFSA for short-term goals, for emergencies, or as an additional retirement savings vehicle.

TFSAs provide growth opportunity, whether you choose to invest in stocks or bonds or keep it simple with a savings account. Any earnings within a TFSA, whether from interest, dividends, or capital gains, remain tax-free.

Plus, withdrawals are tax-free too!

Bonus: Any withdrawals you make in a taxation year will be added to your unused contribution room in the following year.

What is TFSA “contribution room”?

Your TFSA contribution room is the maximum amount you can contribute to your TFSA. It accumulates every year, even if you don’t contribute.

Wondering what the lifetime limit is for a TFSA? As of 2024, the cumulative contribution or lifetime limit is $95,000. If you’ve never contributed to a TFSA and are thinking of doing so now, that’s how much you’re allowed to contribute.

Be sure not to exceed this amount, as it will result in a penalty tax of 1% of the excess amount in your account. Staying informed about the TFSA contribution limit ensures you can maximize your tax-free growth.

How to withdraw from a TFSA

The beauty of TFSAs is the fact that there is no withdrawal penalty. Withdrawing from a TFSA is possible any time, for any reason, without incurring taxes. This makes it an excellent choice for both short-term and long-term savings goals.

Is a TFSA tax-deductible?

Unlike RRSPs, contributions to a TFSA aren’t tax-deductible. However, consider this trade-off when deciding between a RRSP and a TFSA: Any investment gains and withdrawals in a TFSA are tax-free, which means you can take out money any time without penalty or losing contribution room.

Let the RRSP, TFSA, and FHSA take your savings to the next level

Want to fast-track your financial goals? You can do so by understanding the differences between RRSPs, TFSAs, and FHSAs.

Each account offers distinct advantages and considerations. Choose wisely based on what you’re looking to achieve, and stay informed about contribution limits and rules, to make the most of these powerful tools.

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