In Canada, there are many types of registered savings accounts. Depending on your financial goals, you may choose one account over another.
With the recent introduction of the First Home Savings Account (FHSA), there’s a new registered savings account available to help your money grow. But how does the FHSA compare to a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)?
To help you decide, we’ve compiled a quick guide to review the differences between a FHSA, TFSA, and RRSP.
First Home Savings Account (FHSA)
Launched in 2023, the FHSA is a new savings vehicle to help Canadians save for the purchase of a first home. With an annual contribution limit of $8,000, you can hold the same types of investments in a FHSA as in a TFSA or RRSP, including GICs, mutual funds, as well as cash where investment growth is tax sheltered, and your money can grow tax-free. The FHSA allows for tax-free qualified withdrawals for purchase of a qualified home, while any other withdrawals are subject to taxes. Like an RRSP, contributions to your FHSA are tax-deductible, helping reduce your taxes each year. You can learn more at the Government of Canada website.
Tax Free Savings Account (TFSA)
A TFSA is the jack-of-all-trades of registered savings accounts. It lets your money grow tax-free and you can withdraw holdings without any taxable implications. This makes a TFSA an ideal way to save for goals like retirement or a new home, as well as smaller goals like vacations and important purchases. If you’ve never contributed before, you may have as much as $95,000 (for those aged 18 or older in 2009) in available contribution room to grow your wealth tax-free. Unlike FHSAs and RRSPs, your TFSA contributions are not tax-deductible. You can learn more at the Government of Canada website.
Registered Retirement Savings Plan (RRSP)
Saving for retirement is easy with an RRSP. You can make tax-deductible contributions until the age of 71, up to 18% of your previous year’s earned income, up to a maximum of $31,560 for 2024. With a larger annual contribution limit than a TFSA, an RRSP provides an ideal way to both lower taxable income and save for retirement. An RRSP can also help you pay for your first home with the Home Buyers’ Plan (HBP) or education and training costs with the Lifelong Learning Plan (LLP). You can learn more at the Government of Canada website.
Quick Key Facts
RRSP | TFSA | FHSA | |
---|---|---|---|
What is it? | Saving for your retirement and can assist in purchasing your first home. | A registered plan where your investment earnings and withdrawals are tax-free | Buying your first home |
Eligibility | Be 71 years of age or younger (as of December 31 of the current calendar year) Have a permanent or temporary SIN starting with a 9 | At least 18+ years old Be a Canadian resident | Be between the ages of 18 and 71 (19 in some provinces) Be a Canadian resident Not have lived in a home that you or your spouse own in the last 4 calendar years or the year before opening |
Number of Accounts | You may have multiple RRSPs, but can’t contribute more than your contribution limit between all of them. | You may have multiple TFSAs, but can’t contribute more than your contribution limit between all of them. | You may have multiple FHSAs, but can’t contribute more than $8,000 a year or $40,000 in total between all of them. |
Contribution Room | Far higher contribution limits than other registered plans $31,560 annual limit or 18% of your previous year’s earned income (for 2024) up to the max, plus any carry forward contribution room from past years | As much as $95,000 in total contribution room as of 2024 (if 18+ in 2009) $7,000 annual contribution (for 2024), plus any carry-forward contribution room from past years | $40,000 lifetime contribution limit $8,000 annual contribution limit |
Contribution Deductions | Contributions are tax-deductible. | Contributions are not tax-deductible | Contributions are tax-deductible. |
Taxation on Growth | All investment growth is tax-deferred. | All investment growth is tax-free. | All investment growth is tax-free. |
Taxation on Withdrawals | RRSP withdrawals are taxed. Except for withdrawals for the acquisition of your first home (HBP) or to finance your education (LLP). Learn more about the RRSP withdrawal rules from the Government of Canada. | You can withdraw money from a TFSA for any purpose tax free | Only eligible withdrawals for the purchase of your first home are not taxed. You can withdraw money from your FHSA for other purposes, but these withdrawals will be taxed. |
Withdrawals for the Purpose of Purchasing Property | The HBP limit to help with the acquisition of a first property is $35,000. HBP withdrawals must be repaid to an RRSP over a maximum period of 15 years, beginning in the second year following withdrawal. | N/A | There is no withdrawal limit in the FHSA. Amounts withdrawn from FHSA do not have to be repaid. |
Maturity | Funds must be withdrawn, converted to a RRIF, or used to purchase an annuity by the last day of the calendar year when you turn 71. | No maturity date. | If FHSA funds have not been used for a qualifying home purchase by December 31 of its 15th year open or by your 71st birthday, the account must be closed, or funds transferred into an RRSP or RRIF. Your FHSA must also be closed by December 31 of the year following your first qualifying withdrawal. |
Transfers | It is possible to transfer your RRSP to your FHSA under certain circumstances but be sure that it doesn’t exceed your available contribution room in your FHSA. Unlike an FHSA, there’s no direct way to transfer from your RRSP to your TFSA on a tax-free basis. | You cannot transfer funds directly from a TFSA to an FHSA. Funds must be withdrawn and contributed, subject to contribution limits. | You can transfer funds from an FHSA to another FHSA, RRSP or a RRIF on a tax-free basis. You can also transfer an RRSP to an FHSA on a tax-free basis, subject to FHSA contribution limits and where certain conditions are met. |
Beneficiaries | You can name a spouse or common-law partner as successor account holder or a non-spouse or financially dependent child/grandchild as a beneficiary. | You can name a spouse or common-law partner as successor account holder or a non-spouse as a beneficiary. | You can name a spouse or common-law partner as successor account holder or a non-spouse as a beneficiary. |
Planning for your financial future can be overwhelming, especially when it comes to understanding the different savings options available to you. At Integris Credit Union, we can help make sense of it all.
We know that everyone’s financial goals are unique, whether it’s saving for a down payment on a home, building your retirement fund, or simply wanting to save money on taxes. Our team of experts can guide you through the process of choosing the best savings strategy for your specific goals and needs. By taking advantage of our knowledge and experience, you can create a comprehensive financial plan that aligns with your aspirations and helps you achieve financial security.
Don’t let confusion about savings options hold you back. Connect with Integris Credit Union today and take the first step towards a brighter financial future.