Tax-Free Savings Account (TFSA)
Best for: Flexible investing and short-to-medium-term goals.
TFSA account allows you to invest money that was already taxed, and grow it tax-free. What does it mean in simple terms:
1 – If you are employed and receiving paycheck from employer – it is already has taxes withdrawn. This means money in your pay check are “after-tax”.
2 – You can invest this money using TFSA account.
3 – Your money in TFSA will grow with time. You don’t need to pay taxes for any gains in your TFSA account.
Why is this matter? If you put same money into regular bank savings account, they will also grow with time, but you will need to pay taxes for all the gains from savings account.
- 2025 contribution limit: $7,000 (lifetime total up to $95,000 if you were 18 or older in 2009).
- Unused contribution room carries forward.
- Withdrawals can be re-contributed in future years. E.g. if you contributed and then withdrawn from TFSA in a same year, your room does not recover and you need to wait to the next year.
- Ideal for investments like ETFs, stocks, bonds, and mutual funds.
💡 Pro-tip: You can withdraw TFSA money at any time without any penalties, or tax implications.
Registered Retirement Savings Plan (RRSP)
Best for: Retirement savings and income tax reduction.
The RRSP lets you contribute pre-tax income and defer taxes until withdrawal. This means you get a tax deduction today and pay tax later, ideally in retirement when your income (and tax rate) may be lower.
How all this work in theory with an example:
1 – In 2023 your income was $0. This means that in 2024 you will not have any contribution room for RRSP, e.g. you can not contribute any money.
2 – In 2024 you started new job with annual income of $100,000 CAD. In 2025 you file taxes and CRA determines your RRSP contribution limit for 2025 is $18,000 CAD.
3 – In 2025 you can contribute up to $18,000 into your RRSP account.
4 – In 2026 when you will file your taxes you can deduct everything you contributed into RRSP from your income and get a tax refund.
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5 – You are old, have no income and decide withdraw some money from RRSP. Everything you withdraw in given year is considered income and will be taxed accordingly.
- Annual limit: 18% of previous year’s income, up to $32,490 (2024).
- Contributions reduce taxable income.
- Investments grow tax-deferred.
- Withdrawals are taxed as income.
Special programs:
- Home Buyers’ Plan (HBP): Withdraw up to $60,000 for a first home. You will need to re-pay withdrawn amount within 15 years.
- Lifelong Learning Plan (LLP): Withdraw up to $10,000/year for education.
💡 Pro tip: Use RRSP contributions strategically near tax time to lower your tax bill.
For RRSP you can still contribute in the first 60 days of the new year and count it for that past year’s room (tax advantage).
First Home Savings Account (FHSA)
Best for: First-time home buyers.
Introduced in 2023, the FHSA combines the best of TFSA and RRSP features.
Contributions are tax-deductible, and withdrawals for a qualifying home purchase are tax-free.
How this works:
1 – Same as with RRSP everything you contribute can be deducted your total income.
2 – You can contribute up to $8000 CAD per year.
3 – Unused room can be carried over to the next year only up to $16000 max contribution per year.
4 – Total lifetime contribution limit is $40,000 CAD.
5 – All gain are not taxed if used toward qualifying first home purchase. E.g. if you have contributed $40,000 CAD, and it had gained $10,000 CAD, you can use total amount of $50,000 CAD for your home purchase.
- Annual contribution limit: $8,000, lifetime maximum of $40,000 CAD.
- Must be a first-time home buyer.
- Unused contribution room carries forward up to $8000 CAD
- You can transfer funds from your RRSP without penalty.
- If not used for home, funds can be moved to RRSP.
- Maximum lifetime of the account is 15 years.
💡 Pro tip: Use both FHSA and RRSP’s Home Buyers’ Plan together for a bigger tax advantage.
Registered Education Savings Plan (RESP)
Best for: Saving for your child’s education.
The RESP helps parents (and family members) save for post-secondary education while earning government grants.
- Lifetime contribution limit: $50,000 per child.
- Government matches 20% of contributions (up to $500/year, max $7,200 total) via the Canada Education Savings Grant (CESG).
- Investment income grows tax-deferred.
- Withdrawals for education are taxed in the student’s (usually lower) income bracket.
💡 Pro tip: Open an RESP early to maximize grant potential and compounding growth.
As the year ending, seize the moment to take advantage of annual contribution limits and tax-saving opportunities before they vanish, just like your goals reset. Now is the time to act, if you were waiting for a sign – this is it!
Those who can, do; those who can’t, teach.
-George Bernard Shaw
I am a former aerospace engineer turned web development enthusiast with a passion for exploring the digital landscape. My interests include SEO, automation, and web scraping, where I enjoy finding innovative ways to optimize and enhance online experiences. Beyond the world of technology, I have a love for finance, chess, and playing the piano. In my free time, you can find me swimming, hiking, or diving into the latest video games. Always eager to learn and grow, I enjoy blending my technical skills with my diverse hobbies to keep life exciting and fulfilling.