Infographic: TFSA vs RRSP – The Journey of $1,000

How does saving using a TFSA compare to an RRSP? This infographic tracks the journey of $1,000 saved using each and demonstrates how they work and are taxed.

If you’re wondering how to decide between a TFSA and RRSP when it comes to your own savings, we’ve written about this decision in much more detail here

WealthBar-TFSARRSP-Infographic-Feb2016

42 Comments

Jim Kinnear

Very good graphic explanation.
With a TFSA, there is a limit to how much, per year, can be deposited without incurring a penalty.

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Red Harrison

I have never seen a TFSA that has a 6% rate of return. Let’s see these numbers with a reasonable rate of return like 1-2 %.

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Denny Hollick

Hi Red,

This is a pretty common misconception about TFSAs. Many people think that they can only be used with ‘high interest savings accounts’ or GICs. This is not the case.

TFSAs can be invested in stocks, bonds, ETFs and many other investments. Generally speaking in the long-term, returns of the US equities market as a whole is actually above 6%.

Check out this article here in MoneySense: http://www.moneysense.ca/columns/what-are-normal-stock-market-returns/

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Morridin19

If in your TFSA you just bought an ETF that tracked the Canadian stock market you would see an average return (over all historically available data) of around 9.1%. This doesn’t include the MER which is about 0.06% (for VCN and XIC). Not unreasonable at all.

Now if you are basing your rate on the most banks give for just holding cash in a savings account in your TFSA you need to educate yourself on some better uses for your TFSA.

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Tom Gilman

Well Red, you definitely don’t understand what a TFSA is intended to be. Not that I blame you. Banks have convinced Canadians that a 1-2% investment is appropriate. You have been mislead. I reccomend you seek sound advice.

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Danielle

You probably haven’t seen a 6% rate of return because your money was not invested in a solid portfolio. If you opened your TFSA at the bank they never tell you can actually invest your money in the market. It is rather accumulating interest at a regular savings account. I am a financial advisor and I show that to my clients all the time. Look for an investment company rather than investing your money at the bank. Advisors at the bank are paid to open an TFSA account for you but are paid very little to open an investment account inside a TFSA for low amounts of money. They are usually looking at clients that can invest 300 K or more.

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jeff

When you choose to invest in professional managed portfolios you definitely can earn 6% plus ROR. The TFSA is intended for long term wealth creation, not short term emergencies. You and your advisor would choose the best appropriate investment vehicle.

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Gabino

Just like RRSP you can always invest TFSA in mutual funds as well and they it is not guaranteed to get 6% it will have a rate of return greater than savings tfsa or GICs and bonds.

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Kevin

It’s because you aren’t supposed to keep cash in a TFSA. It’s assuming you’re keeping ETF’s in there. You get your 1% interest plus whatever dividends and growth you get from the investments. I’d say 6% is a conservative estimate and you should be able to do better.

If you’re keeping cash in your TFSA please do some research because you’re losing so much growth it’s upsetting me.

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CarolLynn

Stocks! Tax free accounts can hold many different types of investments very possible.

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Ryan

I’ve been getting well over 6% a year I n my tfsa. It all depends on what you invest in once your money is in there.

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Max

Thats because you have not invested in stocks with divedends with 6+% return per annum

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Rob

Your TFSA assets can be invested in anything type of investment it does not have to be a savings account paying 1 or 2%.

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nnulk

What is the final estate if the employer is matching RRSP contributions? Is it a better choice in that case?

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Lucas

I noticed under RRSP additional Tax rebates from utilizing the RRSP are not considered. What additional $ are we saving… based on upfront-year end tax savings visa RRSP receipts here? It only displays RRSP holdings.

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Denny Hollick

Hi Lucas,

This is taken into consideration with the starting balances. The TFSA starts at $750 (because tax is deducted from your paycheque), and the RRSP starts at $1000 since you get those taxes back for any RRSP contributions you make.

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Tim

Why compare one vs the other? Why not position as a real wealth builder and demonstrate doing both! For example contribute to an RRSP and with the refund invest in the TFSA!

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Denny Hollick

We agree! We find many people don’t understand the difference between the two, so this is of particular interest to many. It’s not so much picking one, over another, and both have their advantages in certain circumstances.

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Varun

Would love for this to be an interactive page where you could drag the tax rate. For e.g., what if you started out with a marginal tax rate of 43%? How does the end result look in that case? Everyone’s personal situation will be different, which may tilt the final result one way or the other.

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ryan

I agree this would be useful. Could include pension income as that will affect the marginal tax rate of RRSP withdrawal? Overall this is an amazing way to show the differences. Nice work!

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Pat

Maybe you should include some shading to indicate the RIF payments (and taxes on the RIF payments) from age 71 to 90. Currently it just looks like they just disappear when actually 19 years of $1100-$275 = $15675 goes to the person with the RRSP before their estate collects the $6840.

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Jordan

If u made your max contribution in tfsa and invested in stocks and say turned it into $100,000. Could at the end of the year you withdraw it all and then in the new year put all the $100,000 back in?

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Vincent

You tax the RRSP upun withdrawal but do not include any tax return on the deposit nor any compound interest on that tax return. You also do not take into account the change in the marginal tax rate of a person overtime. I guess the graphic explains that a TFSA grows tax free and a RRSP do not, it is pretty much useless past that.

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Dean

While I am a TFSA fan – shouldn’t the RRSP take the tax refund and then invest in in a non registered account? Seems like a fairer comparison

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Brad Scheck

One thing I didn’t see mentioned that is quite important is that TFSA withdrawals aren’t going to cause claw back on income tested benefits such as OAS and GIS. It really stings when you take money out of your RRIF and pay 30% tax and then are subject to 50% claw back on GIS.

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marcia

so if you had money in an rrsp and none in tfsa would you recommend cashing out rrsp and paying taxes now to reinvest balance in tfsa?

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James F

Very good graphic. I would say that for many people all savings are “after tax”. They have 500 or 1000 dollars left at the end of the month and this is their savings to a TFSA or RRSP. They don’t typically think about the tax refund at the end of the year and simply contribute what they can afford. Likely they will deposit the same amount to either account and in that case the TFSA is the true winner . Debate?

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Des

You forgot one big advantage of TFSAs. If you don’t have pensions to draw at age 65, you can collect guaranteed income supplements (GIS) from the government for five years. Significant tax free income you wouldn’t have if withdrawing RSPs.

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Kim

One thing not considered is how RRSP income affects Canada pension, i.e., it reduces it, whereas TFSAs have no effect as it’s not considered income.

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Jason

This seems very one sided .it does not mention about the benefits of differing taxes with RRSPs this is especially helpful if you are in higher taxes brackets

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Norm Lalonde

This comparison is misleading. The slight of hand occurs at the RIF point because it is reducing the RRSP amount by $1100 per year, when actually they would still have $1100 minus the taxes to reinvest. This amount would not even be taxable but that is another issue. If the RRSP was cashed out in a lumpsum at 25% tax it would work out to be exactly the same result as a TFSA. The TFSA and the RRSP end up exactly the same over time when a person’s tax brackets remain the same. The RRSP is superior in cases where the RRSP is deducted in a higher bracket than when it is redeemed. If the concept works where a person saves in a lower bracket than when it is redeemed, then the TFSA is superior. Both options are good but they need to be deployed in the proper places.

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Florin

Absolutely correct. Notwithstanding government clawbacks or government help (GIS) in retirement, it’s all a decision of tax rate while working vs in retirement.

At the same rate, TFSAs and RRSPs are equal.

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1Milltfsaorbust

Max rrsp and use the income tax return to max tfsa. Hit em both while sacrificing to max 1.

As for tsfa returns that is my area to swing for a home run. Was over 200000 at 1 point and held firm at the current 150000 range. Avoid using the tfsa for any purchase and it can become a powerfull income stream as well. Tax free and not income tested. Do your research people. And not at a bank or just marginally losing to inflation yearly will be the new goal. Somebody is getting rich. Just not you!

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Richard

Something that many people fail to consider is that realized capital gains are tax-free in a TFSA, 50% taxable in a non-registered account, and 100% taxable in an RRSP (because they are withdrawn as “income”).

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