Comparing the RRSP and the TFSA with the FHSA

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Comparing the RRSP and the TFSA with the FHSA

Feb 21, 2024 by Gerry Vittoratos

In this blog article, we will compare the registered accounts offered by the federal government: RRSP, TFSA and FHSA.

Summary of each account

RRSP — A Registered Retirement Savings Plan allows you to save money in a tax-sheltered account for your retirement.

Contributions to the RRSP are tax deductible.

The contribution limit is increased annually by 18% of earned income (employment income, net self-employment income, net rental income, etc.) and the unused limit is carried to future years.

Withdrawals are taxable.

TFSA — A Tax-Free Savings Account allows you to save money in a registered, tax-sheltered account for a short-term savings goal or for retirement.

Contributions to the TFSA are not tax deductible.

The contribution limit is set by the federal government and is cumulative if not used.

Withdrawals are non-taxable.

FHSA — A tax-free First Home Savings Account allows you to save money in a registered, tax-sheltered account for the down payment needed to purchase a first home.

Contributions to the FHSA are tax deductible.

The contribution limit is set by the federal government and is cumulative if not used.

Withdrawals are non-taxable if used for a down payment to purchase a first home.

Characteristics

There is one main similarity between all three plans: any gain/income earned within these accounts is tax sheltered as long as the assets remain there.

While contributions to RRSPs and FHSAs are tax deductible, contributions to TFSAs are not.

The contribution limits are set by the federal government for TFSAs and FHSAs, while RRSP limits are determined by income earned in the year (employment income, net self-employment income, net rental income, etc.).

Withdrawals are taxable for RRSPs, non-taxable for TFSAs, and non-taxable for FHSAs if used for a down payment to purchase a first home.

The table below is a side-by-side comparison of the three registered accounts.

Characteristic	RRSP	TFSA	FHSA
Eligibility	First year of earned income (employment, business, rental, etc.)	At least 18 years old	At least 18 years old; must be eligible as a first-time home buyer
Contributions tax deductible	Yes	No	Yes
Contribution limit	18% of earned income, cumulative unused limit	$7,000/year, cumulative unused limit	$8,000/year, $40,000 lifetime, cumulative unused limit
Gains earned within accounts	Tax sheltered	Tax sheltered	Tax sheltered
Withdrawals	Taxable for income Non-taxable if used for the purchase of a first home (Home Buyers’ Plan) and repaid	Non-taxable	Non-taxable if used for the purchase of a first home (qualifying withdrawal)
Withdrawals added back to contribution limit	No	Yes for the following year	No
Expiry of account	71 years old, then converts to a RRIF	Death	The sooner of: year of the qualifying withdrawal or 15 years after creation of account
Transfers between accounts	Tax-free transfer to FHSA, subject to limits Transfer to TFSA considered a taxable withdrawal	Transfer to either RRSP or FHSA considered a withdrawal from the account (tax-free)	Tax-free transfer to RRSP, not subject to RRSP contribution limits

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UFile's tax expert Gerry Vittoratos
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Gerry Vittoratos
MTax