Retirement Savings Plan (RSP)
An RSP is a tax-advantaged savings vehicle designed specifically to help you save money for retirement.
Contributions: Your RSP contribution limit is based on your income. The contributions you make are tax-deductible, which means you will not be taxed on the money you put into an RSP until you withdraw it.
Withdrawals: RSPs are designed for long-term saving. While you may withdraw all or part of the money at any time, RSP withdrawals are subject to tax and the terms of the investment you choose.
Still, your money is available should you need it. There are also several programs that permit RSP withdrawals for certain purposes. For example, if you’re a first-time homebuyer, the RSP Home Buyers’ Plan lets you withdraw up to $35,000 from your RSPs (up to $70,000 for a couple), subject to eligibility and certain conditions.
Your RSP can be converted to a form of retirement income at any time, but no later than the end of the calendar year in which you turn 71. At that time, you'll have three choices:
- Convert your RSP to a Retirement Income Fund (RIF)
- Convert your RSP to a life annuity
- Withdraw the entire amount of your RSP in one lump sum
Tax-Free Savings Account (TFSA)
A TFSA is designed to help you save money for any goal – this can include big ticket items such as a new home or a vehicle, travel, a wedding, or even long-term planning for retirement.
Contributions: The amount of money you're allowed to contribute to a TFSA isn't based on your income, but rather dictated by an annual limit set by the federal government. However, unlike an RSP, your contributions are not tax-deductible. If you contribute more than your contribution limit, you will pay a penalty of 1% per month on the excess amount.
Withdrawals: Any withdrawal made from a TFSA is tax-free.