The TFSA and RRSP are powerful savings tools. But they can also be a little confusing. In this article, we aim to demystify these accounts, to help you get a better grasp of how they work and how best to use them.

The basic idea behind a TFSA RRSP Planning Tool is that any money you put into it is from after-tax income, so when you take it out, it’s completely tax-free (similar to an RRSP). This allows the growth of your investments to potentially accelerate much faster than in a regular taxable account, where the CRA takes its cut every year.

As an entrepreneur, it’s important to make sure you understand how your own business may impact your TFSA and RRSP contribution limits. For example, if you are an owner of an incorporated business, your corporate taxes and dividends can reduce your available TFSA contribution room, or even cancel it entirely. A tax advisor can help you determine if this could be an issue for you and your clients.

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Another important consideration is that the TFSA dollar limit is indexed to inflation and it resets to $7,000 in 2024. However, any unused contribution room carried forward is not lost. You can find your TFSA limit on your most recent Notice of Assessment from the Canada Revenue Agency.

Whether you choose to save in a TFSA, an RRSP or both will depend on your retirement goals, your eligibility for income-tested benefits and your current and expected future financial situation and income level. A financial advisor can help you create a savings strategy that meets your needs.