Saving plans

2025-04-117 minutes

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In Canada, the 3 main financial vehicles are:

These 3 savings plans are just accounts. Depositing money into these accounts provides access to certain tax advantages. But to fully benefit from these tax advantages, the deposited money needs to be invested.

Note

You can open these accounts at as many financial institutions as you like. Nothing prevents you from having a TFSA at Desjardins, one at TD, and another at Wealthsimple.

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RRSP

The primary goal of the RRSP is to defer paying tax. This allows the investments to compound faster.

The deposited money is tax-deductible
The withdrawn money, including gains, is taxable
Automatically registered with the government after your first tax return
In 2024, the annual contribution limit is the smallest amount of:
- 18% of the income earned in the previous year
- $31,560
The contribution space is cumulative
The money needs to be invested to grow
Generally, the money in an RRSP stays there until retirement

In other words, you put money into your RRSP, and then you invest that money. This entire process is tax-free. It is only when the money is withdrawn, usually at retirement, that it is taxed. The main assumption is that income at retirement will be lower than during working life, therefore less tax to pay. For example, the last dollars taxed at 40% today will be taxed at 30% at retirement, simply because the marginal tax rate will be lower since the total income will be lower.

Note

Tax on an RRSP is applied only upon withdrawal of money. You could, for example, sell part of your investments to secure gains and reinvest those gains in less risky investments. All this without tax impact.

HBP and LLP

The HBP, Home Buyers' Plan, allows you to withdraw up to $60,000 (2025) from your RRSP to buy or build a home. The HBP is a loan from yourself to yourself. After using it, you have up to 15 years to repay your RRSP.

The LLP, Lifelong Learning Plan, allows you to withdraw up to $20,000 (2025) from your RRSP to finance your studies or those of your partner.

RREGOP

The RREGOP is the public sector pension plan in Quebec. To have access to it, you must work in the public sector. It is a defined benefit plan, meaning that pensions at retirement are guaranteed for life.

It is important to know that RREGOP contributions reduce the annual RRSP contribution limit.

Group retirement plan

Generally, private companies offer a group retirement plan to which you can contribute. Often, the company will also contribute to your retirement plan. A popular policy among private companies is to match contributions up to 4% of the salary. For example, for an employee earning $100,000 at a company with this policy:

Employee Contribution	Employer Contribution	Total
2,000 (2%)	2,000 (2%)	$4,000
4,000 (4%)	4,000 (4%)	$8,000
8,000 (8%)	4,000 (4%)	$12,000

As seen in the table, when the company offers it, it is super important to participate in the group retirement plan since it provides a huge return without any risk. Find out what type of group retirement plan is offered at your company. There are usually 2 types:

Defined contribution: you contribute a determined amount, and your retirement pension will depend on the success of the investments
Defined benefit: rarer, this plan guarantees retirement pensions for life, much like the public system's RREGOP

Note

Your contributions, as well as those of your employer, are constrained by your available RRSP space.

TFSA

The goal of the Tax-Free Savings Account is to allow people to grow their money without paying tax on the gains.

The deposited money is already-taxed money
The withdrawn money, including gains, is tax-free
Automatically registered with the government at age 18
The annual contribution limit is fixed
In 2025, the maximal annual contribution limit is $7,000
The contribution space is cumulative
The money needs to be invested to grow
Amounts withdrawn from the TFSA will be added back to your contribution space the year after the withdrawal

FHSA

The goal of the FHSA is to help people access their first property. It is the most powerful savings plan since it combines both the tax advantages of the TFSA and those of the RRSP. In short, it is a completely tax-free account.

The deposited money is tax-deductible (like an RRSP)
The withdrawn money, including gains, is tax-free (like a TFSA)
Account registration with the government is not automatic
The annual contribution limit is fixed
In 2025, the annual contribution limit is $8,000
The contribution space is cumulative
The maximum contribution of $40,000 is reached after 5 years
The money needs to be invested to grow
You have 15 years to use it

Unlike the TFSA, the available space only accumulates if an FHSA is created. Therefore, it may be beneficial to open an FHSA, even without contributing, just to accumulate the contribution space. However, be aware of the 15-year time limit.

Tip

It is beneficial to contribute to your FHSA even if you plan to remain a renter for life. Indeed, you can contribute and invest in your FHSA to take advantage of the tax benefits. Then, at the end of the 15 years, you can transfer your funds to an RRSP without affecting your contribution rights. This is, indirectly, $40,000 of additional contribution space in your RRSP. It is even possible to contribute to your FHSA and not use it when buying a first home to take advantage of this additional space in your RRSP.

Non-registered account

The RRSP, TFSA, and FHSA are all accounts registered with the federal government. Money can be contributed and invested in them. There is another type of account, the non-registered account. This is also an account in which you can contribute and invest, but without any tax advantages. Generally, if you manage to maximize your registered accounts, the next step is to invest in a non-registered account, a 'normal' investment account.

The deposited money is taxed money
On withdrawals, only gains are taxable since the invested capital has already been taxed
No contribution limit

FHSA, TFSA, or RRSP

Choosing which account to invest in depends on your goals and some conditions:

Buying a property

FHSA
RRSP to use the HBP

For retirement

TFSA: gross income less than $50,000
RRSP: gross income greater than $50,000

Investing to keep the money available

TFSA

The reality is that you already are a winner by wanting to invest.

Find your contribution room

To find out your contribution room for your RRSP, TFSA, or FHSA, visit the Canada Revenue Agency website where you will find the information.

For the RRSP, the additional space is calculated after your tax return
For the TFSA, the additional space is a fixed amount and allocated at the beginning of the year
For the FHSA, the additional space is a fixed amount and allocated at the beginning of the year if you already have an FHSA

A concrete example

To demonstrate the power of financial vehicles, let's imagine two people, Léo and Emma, with the same gross income, $80,000. Our two subjects work at the same company and invest their money. The company offers a group retirement plan with a 3% match. Léo will not use any financial vehicles, while Emma, wiser, will use them all.

Léo aggressively invested $20,000 in his non-registered account. Let's see what Emma can do with the goal of achieving the same net income after investments; the same amount available in her checking account at the end of the year.

Emma invested the maximum annual amount in her RRSP, which is 18% of her previous year's salary; 15% from herself and 3% from her employer. She put $8,000 in her FHSA to reach her annual limit. She was also able to maximize her TFSA at $7,000 and put the rest in her non-registered account.

Account	Léo	Emma
Gross Income	80,000	80,000
Group Retirement Plan	0	2,400 (3%)
Employer Contribution	0	2,400 (3%)
FHSA	0	8,000
RRSP	0	9,600
Taxable Income	80,000	60,000
Income Tax	(26,500)	(18,750)
Net Income	53,500	41,250
TFSA	0	7,000
Non-registered	20,000	750
Net Income Post-Investments	33,500	33,500
Investment Amount	20,000	30,150
As a Percentage of Gross Income	25%	37.6%

Emma is more involved, certainly, but the numbers speak for themselves. She was able to invest $10,150 more than Léo.

Note

In addition, these calculations ignore the benefits of the TFSA, which are only visible at the time of withdrawal, given that TFSA gains are non-taxable, while those of the non-registered account will be.