RRSPs and TFSAs are Savings and Investment accounts that are registered with the federal government and allow for some tax and income benefits. They are also known as Registered Savings Plans. Both kinds can be used to save for retirement, but they come with different features. The one you choose will depend on what your goals are, whether they are short or long-term goals and how soon or how often you may need to access that cash.

A registered retirement savings plan or RRSP for short is primarily meant to help you save for retirement. The money that you put in here is known as a contribution and that contribution is tax deductible, what that means is for example if you make an income of $3000 per month and your contribution to your RRSP is $200 per month then you only pay income tax on $2800 per month and that $200 goes into your registered retirement savings plan tax-free. If you choose to pull money out of the RRSP then you will need to pay taxes on that withdrawal.

There are a few times that you can withdraw from your RRSP and not pay taxes, 1. Home Buyer's Savings plan, where you can pull out up to $35000 for a down payment on your first home. This money is completely tax-free, meaning you didn't pay taxes on it when it went into the account and you are not paying taxes when you withdraw that money from the account. You must repay the amount over 15 years, starting the second year from when you withdraw the funds. For example, if you withdrew the full $35000, then each year you need to contribute at least $2333 and designate that as payback to the home buyer's plan. If you do not, then you will need to include $2333 as part of your taxable income for the year. 2. Lifelong Learning Plan. This allows you to withdraw $10000 in a calendar year from your RRSP, tax-free. In this instance, you have 10 years to repay the full balance. For example $10000, over 10 years is $1000 per year. The same rules for repayment apply as with the Home Buyer's Plan.

A tax-free savings account or TFSA for short is more of a general savings plan. You can still use a TFSA to save for retirement or you could use it to save for something shorter term like a wedding. The main difference is that the income that you put into a tax-free savings account( also known as a contribution ) is not tax-deductible meaning if you make $3000 a month and you put $200 a month into your TFSA you would still pay income tax on the full $3000. But that $200 contribution to the TFSA will earn interest and that interest earned will not be subjected to taxes. That is where the benefit is as opposed to a regular type of savings account.

If you are trying to decide whether you should invest in an RRSP or a TFSA, you need to ask yourself how soon you will need the money. If you're saving for something that is more short-term like a vacation or a vehicle for example, then a TFSA would be the better choice. But if you're planning for more long-term and you don't really want to touch that money anytime soon, or if you could benefit from the tax break, then the RRSP would be the better choice.

RRSPs and TFSAs are not the only savings or investment tools available to you, nor are they necessarily the best ones for your situation. This article was meant to provide a high-level overview of a commonly asked question, which is: what is the difference between an RRSP and a TFSA? For more in-depth questions, you may book an appointment with our Financial Coach.

KOHO does not currently don't offer TFSAs or RRSPs. But we do have other savings options. From within your KOHO app, you can access the Vault which locks the money away in savings. Also, if you check in your Tools, there is a section that says Goals, where you can set the goal name and amount. You can also sign up to earn 1.2% which is higher than a regular bank account. We also offer features like RoundUp and Cash-back to help you save even more.

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