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RRSPs and TFSAs: What are they?
An RRSP (Registered Retirement Savings Plan) lets you build up savings that are taxed only when you withdraw them—usually when you retire. The return on your RRSP contributions is tax-free (normally, you must pay tax on investment income). Better yet, contributions to an RRSP will reduce your taxable income.
Remember, though, you’ll only get a tax deduction if you’ve earned enough income to pay tax! That may not be the case if you’re a student. If, however, you take money out of your RRSP, the withdrawals are added to your taxable income, in which case you would pay the applicable tax.
A TFSA (Tax-Free Savings Account) is a savings plan that allows you to grow TFSA contributions tax-free. On one hand, TFSA contributions are not tax deductible. On the other hand, you don’t pay tax when you withdraw amounts from your TFSA. You must be 18 and over to contribute to a TFSA.
Here are the main differences you need to know to understand RRSPs and TFSAs.
To find out more, especially about the maximum contributions you can make to an RRSP and a TFSA, check out the following information.