TFSA, RRSP or FHSA: which is right for you?

Feature	TFSA	RRSP	FHSA
Established	2009	1957	2023
Age Restrictions	18+	Up to age 71 with income and tax return	18+, not turning 72 in the year
Tax Deductible Contributions	No	Yes	Yes
Home Purchase Withdrawals	Non-taxable	Non-taxable (Home Buyers’ Plan)	Non-taxable
Annual Contribution Limit	$7,000	18% of income, up to $31,560	$8,000
Carry Forward Unused Contribution Room	Yes	Yes	Yes, up to $8,000
Over Contribution Penalty	1% per month	1% per month	1% per month
Tax Advantages	Tax-free growth and withdrawals	Tax-sheltered growth, tax-deductible contributions	Tax-free growth, tax-deductible contributions, tax-free withdrawals for first home
Tax Disadvantages	Contributions not tax deductible	Withdrawals taxed as income	None specified
Withdrawal Rules	Tax-free, any time, any purpose	Taxed as income unless for home or education; must convert to RRIF by age 71	Must be for qualifying home in Canada, specific conditions apply
Redeposit Withdrawals	Yes, adjusted contribution room next year	No, except for Lifelong Learning Plan or Home Buyers’ Plan	Yes, can transfer tax-free to another FHSA, RRSP, or RRIF
Beneficiary/Successor	Yes	Yes	Yes, can designate spouse or partner
Spousal Contributions	No	Yes	No

• Home Buyers Plan: You can withdraw up to $60,000 from your RRSP to buy or build a qualifying home.

• TFSA: Anyone who was 18 or older in 2009, and has not yet contributed, will have $95,000 of contribution room available in 2024. Your TFSA limit is based on your age. Future contribution limits are set by the government, and will change each year moving forward.

• Annual Limits: Your RRSP contribution limit can be impacted by pension adjustments from employer-sponsored plans, and it’s important to check your latest Notice of Assessment for your specific limit.

• Spousal RRSP: designed for couples, married or common-law, and allows one partner to contribute to the other's RRSP. The individual contributing to the Spousal RRSP get the tax deduction, but the plan is in the non-contributing spouse or common-law partner's name.

  
  

Millennials should care about TFSA, RRSP, and FHSA accounts for several important reasons:

1. Financial Flexibility:

• TFSA: Offers tax-free growth and withdrawals, making it a great option for both short-term savings and long-term investments. Funds can be accessed at any time without penalty.

• FHSA: Specifically designed for first-time home buyers, allowing tax-free withdrawals for purchasing a home, which is particularly relevant for millennials entering the housing market.

2. Tax Benefits:

• RRSP: Contributions are tax-deductible, which can lower taxable income and result in a tax refund. This is beneficial for young professionals with higher earning potential.

• Tax-free growth: Both TFSA and FHSA allow your investments to grow without being taxed, maximizing your savings.

3. Retirement Planning:

• RRSP: Encourages millennials to start saving for retirement early. The sooner you start, the more you benefit from compound growth.

• TFSA: Can also be used for retirement savings, providing additional flexibility to manage withdrawals without tax implications.

4. Homeownership:

• FHSA: Addresses the challenge of rising home prices by offering a tax-efficient way to save for a first home. This is crucial for millennials looking to enter the housing market.

5. Long-Term Growth:

• Investing in these accounts can lead to significant wealth accumulation over time, particularly with the power of compound interest.

6. Understanding Financial Literacy:

• Familiarity with these accounts helps millennials build financial literacy, enabling better decision-making regarding investments, savings, and future financial goals.

7. Avoiding Debt:

• Utilizing these accounts can reduce the need for high-interest loans or credit card debt for major purchases, such as homes or education.

By taking advantage of these accounts, millennials can set themselves up for financial success.

Working with a financial planner to maximize the value of your TFSA, RRSP, and FHSA accounts can be beneficial for ten reasons:

1. Personalized Financial Strategy:

• A financial planner can assess your individual financial situation, goals, and risk tolerance, crafting a tailored strategy that aligns with your specific needs.

2. Maximizing Contributions:

• Financial planners help ensure you’re making the most of your contribution limits for each account type, optimizing your tax advantages and growth potential.

3. Tax Optimization:

• Understanding the tax implications of each account is crucial. A planner can help you strategically withdraw or contribute to minimize tax liabilities and maximize your after-tax returns.

4. Investment Guidance:

• A planner can provide insights into appropriate investment options within these accounts, balancing growth and risk to help you reach your financial goals.

5. Avoiding Costly Mistakes:

• Misunderstanding the rules surrounding contributions, withdrawals, and penalties can lead to costly errors. A planner can help you navigate these complexities to avoid fines or unintentional tax implications.

6. Long-Term Planning:

• Financial planners can assist in creating a comprehensive financial plan that considers your future needs, such as retirement, education, or homeownership, ensuring you’re prepared for major life events.

7. Staying Informed:

• Financial planners stay updated on changes to tax laws and financial products, ensuring your strategy remains effective and compliant with current regulations.

8. Behavioral Coaching:

• A planner can help you stick to your financial goals and avoid emotional decision-making that could derail your savings and investment plans.

9. Estate Planning:

• Understanding how to pass on your accounts effectively can be crucial for wealth transfer. A financial planner can help you navigate beneficiary designations and estate implications.

10. Holistic Approach:

• A financial planner considers all aspects of your financial life, integrating retirement accounts with savings, investments, and insurance for a well-rounded approach to wealth management.

Using a financial planner can enhance your ability to effectively utilize these accounts, helping you build a stronger financial future while minimizing risks and maximizing growth.

Need help choosing which account is right for you? Speak with a Certified Financial Planner to make an informed decision.

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