This year’s Registered Retirement Savings Plan (RRSP) contribution deadline for the 2019 tax year is March 2, 2020. This means that any contributions up until this date can be deducted against 2019 income (or carried forward). This tax deduction is a major benefit come tax time, but is it right for you? Or are you better off contributing to a Tax-Free Savings Account (TFSA)? Let’s break down some of the key differences.\nRRSP EXPLAINED\nRRSPs are retirement savings accounts that have been around since 1957 to help Canadians save for retirement by allowing tax to be deferred until retirement. Generally speaking, RRSPs are most advantageous to individuals who are in a high tax bracket when they are contributing and plan to be in a lower tax bracket when they withdraw (hopefully in retirement).\nThe contribution limit for RRSPs varies from person to person because it is the lower of 18 per cent earned income from the previous year and $26,500. These contributions are tax deductible and any unused room carries forward.\nIncome earned within an RRSP is tax-sheltered until withdrawal.\nWithdrawals from an RRSP are taxed as income and can impact whether or not you receive your government benefits. Contribution room is not restored after withdrawals are made.\nMay be right for you if:\n\n you’re saving for retirement, are in a higher tax bracket and don’t expect your income to grow significantly\n you’re saving towards your first home and plan to use your RRSP to take advantage of the Home Buyer’s Plan (HBP)\n you’re saving towards your education and plan to use your RRSP to take advantage of the Lifelong Learning Plan (LLP)\n\nTFSA explained\nTFSAs are savings accounts that were introduced in 2009 to encourage Canadians to save more. It is a flexible savings vehicle and allows your investments to grow tax free.\nThe contribution limit for TFSAs is a set amount each year which is the same for everyoneꟷ$6,000 in 2020. These contributions are not tax deductible and any unused room carries forward.\nIncome earned within a TFSA is not taxed.\nWithdrawals from TFSA are not taxed and do not impact government benefits. Contribution room is restored in the following calendar year.\nMay be right for you if:\n\n you’re saving towards an objective that is sooner than retirement like a vacation, car, wedding, etc.\n you’re saving for retirement but are in a low tax bracket and expect your income to increase significantly\n you’re over the age of 71 and are no longer allowed to contribute to an RRSP\n\nThere may or may not be a clear answer as to which account would be best for your situation, or perhaps a combination of both is right for you. Consider a combination strategy such as contributing to an RRSP to generate a tax refund and putting that refund into a TFSA. If you are unsure of the best strategy for you, seek the advice of a qualified financial professional.\nUnsure of your contribution limits? Check Canada Revenue Agency (CRA)’s My Account to verify. Be very mindful of your limits and how much you’ve contributed each year. If you over-contribute, you will be assessed a one per cent penalty on excess contributions for every month.\nKEEP THE CONVERSATION GOING\nWill you be contributing to an RRSP, TFSA or both in 2020? Post a comment below.\n \n \nDisclaimer\nThe views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.