For newcomers to Canada, saving and investing are important steps toward building financial security. Two popular options you may hear about are the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). Both accounts offer valuable features and tax advantages, but they work in different ways. Understanding how each one operates may help you decide which suits your financial goals.
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What is a TFSA?
The Tax-Free Savings Account (TFSA) is a registered savings account that lets you grow and withdraw your money tax-free, making it a great option when saving for short and long-term financial goals. It can hold cash savings and qualified investments that generate tax-free income. You may contribute funds to a TFSA up to an annual contribution amount set by the Government of Canada as well as any unused contribution room from previous years (refer below for more information about contribution room), invest them in eligible products, and withdraw money at any time without paying tax (subject to product limitations on term limits).[1]
Deposits and withdrawals: Money you deposit into a TFSA is made with after-tax dollars, so there are no tax deductions for your contributions. However, any interest, dividends, or capital gains earned within the account are not taxed – even when you take the money out. You can withdraw funds at any time (subject to product limitations on term limits), and the amount you withdraw is added back to your contribution room the following calendar year.[2]
Investment options: There are many different TFSA options available that can hold a wide range of investments. This includes cash, mutual funds, guaranteed investment certificates (GICs), exchange-traded funds (ETFs), bonds, and stocks. This allows you to decide what TFSA investments match with your comfort level and financial goals, whether that’s saving for a major purchase, building an emergency fund, or growing long-term wealth.[3]
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What Is an RRSP?
A Registered Retirement Savings Plan (RRSP) is another registered plan designed to help Canadian residents save for retirement.[4] Contributions you make may reduce your taxable income for the year, which could result in tax savings. The money inside your RRSP grows tax-deferred until you withdraw it, typically in retirement when your income – and applicable marginal tax rate – may be lower. You can contribute to an RRSP after you start earning taxable income.
Saving for retirement: An RRSP may help you prepare for the future by offering both immediate and long-term tax advantages. RRSP contributions are tax-deductible. This means contributions you make may reduce the amount of tax you pay on your personal income. Further, RRSP earnings can grow tax-deferred, meaning your investments continue to grow without being taxed until withdrawal. Many people are generally in lower marginal tax rates when they are retired as opposed to in their working years. When you retire and start withdrawing from your RRSP, those withdrawals are counted as income for tax purposes.[4]
Investment options: Like a TFSA, an RRSP may hold a variety of qualified investments such as mutual funds, GICs, bonds, ETFs, and stocks. This variety lets you build a diversified portfolio that aligns with your retirement timeline and comfort with risk.[5]
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Who Is Eligible to Open a TFSA or RRSP?
TFSA eligibility: TFSAs are available to every Canadian resident, who is 18 years of age or older with a valid Social Insurance Number (SIN). To open a TFSA with TD, you must be of the age of majority in your province of residence.[1]
RRSP eligibility: Any Canadian resident with a valid SIN can open an RRSP. To contribute to an RRSP, you must have earned income in Canada and filed a tax return (Note: You can only contribute after you file your first income tax return in Canada and have RRSP contribution room as a result). There is no minimum age; however, some financial institutions may require customers to be the age of majority. You can set up and contribute to an RRSP up to the end of the year you turn 71 as long as you are a Canadian resident, have earned income, have RRSP contribution room, and file a tax return.
Newcomers may be asked to provide identification and immigration documents when opening either account. Checking with your financial institution may help ensure you have what’s needed to get started.[2]
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How TFSAs and RRSPs Work
While both accounts encourage saving and investing, they have different benefits when it comes to contribution limits, taxes, and withdrawals.[6]
Contribution limits: Each year, the government sets contribution limits for both accounts. TFSA contribution room accumulates annually, and any unused room carries forward indefinitely. If you are a new resident of Canada, you start to accumulate contribution room in the year that you have residency if you are 18 years of age or older. For RRSPs, contribution room depends on your earned income – 18% of the previous year’s earned income as reported on your Canadian tax return, up to a yearly maximum, subject to certain adjustments.[5]
Tax treatment of Contributions: TFSA contributions are not tax-deductible. RRSP contributions are tax deductible. This means RRSP contributions you make may reduce the amount of tax you pay on your personal income. [5]
Withdrawals and flexibility: When withdrawing funds from an RRSP, your contribution room is lost for the amounts you withdraw (unless participating in Lifelong Learning Plan (LLP) and the Home Buyers’ Plan (HBP) program). The withdrawal is subject to withholding tax and the amount also needs to be included as income when filing your taxes.[7] For a TFSA, withdrawn amounts are added back to your contribution room in the following year.[5]
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What Newcomers Should Consider Before Opening a TFSA or RRSP
Choosing between a TFSA and an RRSP may depend on your income level, tax situation, and savings goals.
Income and tax considerations: If you’re new to Canada and still establishing your career, a TFSA may be a practical place to start saving. Since contributions are not tax-deductible, you don’t need any income to benefit.[8] The flexibility to withdraw funds at any time may also be helpful as you settle into your new life in Canada.[2]
If your income is higher and you want to lower your taxable income, an RRSP may be worth considering. Contributions may reduce the amount of tax you pay today, while providing a foundation for long-term retirement savings.
Long-term planning: Over time, many people choose to use both accounts together. A TFSA may serve shorter-term goals and emergency savings, while an RRSP may help you prepare for retirement. Reviewing your goals with a TD Personal Banker and adjusting your strategy may help you make the most of both.[5]
Understanding how a TFSA and an RRSP work, especially their rules, eligibility and how they differ, may help you make more informed choices about saving and investing in Canada.[6] Both accounts offer advantages designed to support different financial goals – whether you’re building an emergency fund, saving for a home, or preparing for retirement.
As a newcomer, taking the time to learn about these options and seeking advice from a financial professional may help you build a confident path toward your financial future.
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[1] TD Canada Trust, What Is a Tax-Free Savings Account (TFSA)?, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/learn/what-is-tax-free-savings-account, (accessed 29 September 2025).
[2] TD Canada Trust, 2025 Maximum TFSA Contribution Limits & Withdrawal Rules, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/learn/tfsa-contribution-room-withdrawal-rules (accessed 21 November 2025)
[3] TD Canada Trust, Taxation Rules & Investment Holdings, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/learn/tfsa-investment-options-taxation-rules (accessed 29 September 2025).
[4] TD Canada Trust, Registered Retirement Savings Plan (RRSP), Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/products/registered-plans/rrsp, (accessed 29 September 2025).
[5] TD Canada Trust, What is an RRSP?, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/learn/what-is-rrsp, (accessed 20 September 2025).
[6] TD Canada Trust, Comparing TFSA vs. RRSP, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/learn/comparing-tfsa-vs-rrsp, (accessed 29 September 2025).
[7] TD Canada Trust, Making RRSP Withdrawals: What You Should Know, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/products/saving-investing/registered-plans/rsp/rrsp-withdrawal-rules, (accessed 25 November).
[8] TD Canada Trust, How to Save Money: Tips and Strategies, Toronto, TD Bank Group, 2025, https://www.td.com/ca/en/personal-banking/personal-investing/learn/how-to-save-money-tips, (accessed 29 September 2025).