“Tax-advantaged” is just another way of saying an investment, savings plan, or financial account that helps you save on taxes. This could mean it’s tax-free, tax-deferred, or comes with other tax perks. A tax-advantaged account is one that lets you keep more of your money—either by allowing you to deduct contributions and grow your savings tax-deferred or by giving you tax-free earnings and withdrawals.
Let’s break down the different types of tax-advantaged savings accounts in Canada and see how they can help you build your wealth while keeping more of it in your pocket.
Types of tax-advantaged savings accounts in Canada
There are several types of tax-advantaged savings accounts available in Canada to help you save more money. These include:
Tax-Free Savings Account (TFSA)
A Tax-Free Savings Account (TFSA) is a flexible way for Canadians to invest and save tax-free. Whether you’re putting money into qualified investments like stocks, bonds, or mutual funds, or just a high-interest savings account, any growth—like interest, dividends, or capital gains—is tax-exempt. Plus, when you withdraw money, you receive tax-free withdrawals.
As long as you have a valid Social Insurance Number (SIN) and have reached the age of majority in your province, you can open a TFSA and start growing your savings.
It’s important to note that there is an annual contribution limit for TFSAs. Your annual contribution room resets every January 1, and for 2025, the maximum is $7,000. While this limit is the same for everyone who’s eligible to have a TFSA, your personal contribution room may be different. That’s because your total contribution room includes not just the current year’s limit, but also any unused contribution room from previous years. So if you haven’t maxed out your TFSA in the past, you can carry forward that extra space and contribute more in the future.
Registered Retirement Savings Plan (RRSP)
A Registered Retirement Savings Plan (RRSP) is a smart way for Canadians to save for retirement while getting tax breaks along the way. When you contribute to an RRSP, you can deduct those contributions from your taxable income, which means you could pay less in taxes now.
Your money also grows tax-free while it’s in the account, helping you build your savings faster. When you eventually withdraw it in retirement, you’ll pay taxes on the withdrawals, but likely at a lower rate than you would today—since most people have a lower income in retirement. It’s a great way to save more now and minimize the tax burden later.
Just like with a TFSA, there’s an annual contribution limit for RRSPs. Each year, you can contribute up to 18% of your previous year’s earned income, up to a maximum set by the government ($31,560 for 2024). If you don’t use up your full contribution room, don’t worry—it carries forward, so you can catch up later. Just be careful not to over-contribute—there’s a small buffer of $2,000, but anything beyond that could result in penalties.
Registered Disability Savings Plan (RDSP)
A Registered Disability Savings Plan (RDSP) is a long-term savings plan designed to help Canadians with disabilities and their families save for the future, with valuable government support along the way. While contributions to an RDSP aren’t tax-deductible, your investments grow tax-free, and when it’s time to withdraw, only the government contributions and investment growth are taxed—your original contributions come out tax-free.
One of the biggest benefits of an RDSP is the government grants and bonds available to help boost savings. Depending on family income and contributions, eligible individuals can receive the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB)—potentially adding up to $90,000 in government contributions over time. That’s free money to help secure long-term financial stability!
Unlike with RRSPs, there’s no annual contribution limit, but there is a lifetime contribution limit of $200,000. This means you can contribute at your own pace, as long as the plan is opened before the beneficiary turns 49. The government provides matching grants until the beneficiary turns 49, so starting early can help maximize these benefits.
Registered Education Savings Plan (RESP)
A Registered Education Savings Plan (RESP) is a smart way for parents, guardians, and family members to save for a child’s post-secondary education while getting valuable government support along the way. Like with the RDSP, your RESP contributions aren’t tax-deductible but your investments grow tax-free, and when the money is withdrawn for education, only the earnings and government contributions are taxed—typically at the student’s lower tax rate.
With RESPs, there are also government grants that help boost your savings. The Canada Education Savings Grant (CESG) matches 20% of your annual contributions, up to $500 per year, with a lifetime maximum of $7,200 per child. Lower-income families may also qualify for additional grants and the Canada Learning Bond (CLB)—meaning even more free money to help with future education costs.
Also like RDSPs, there’s no annual contribution limit, but there is a lifetime limit of $50,000 per child. These funds can be used for tuition, books, living expenses, and other education-related costs. And if the child doesn’t pursue post-secondary education, there are options to transfer the funds or withdraw them under certain conditions.
Tax-Free First Home Savings Account (FHSA)
The Tax-Free First Home Savings Account (FHSA) is a great way for Canadians to save up for their first home while getting some serious tax benefits. If you’re a Canadian resident who has reached the age of majority in your province, you can contribute up to $8,000 per year, with a lifetime limit of $40,000.
It’s the best of both worlds—like an RRSP, your contributions are tax-deductible (meaning they can lower your taxable income), and like a TFSA, your money grows tax-free, and you won’t pay taxes when you withdraw it for a qualifying home purchase. It’s a great way to build a down payment faster while keeping more money in your pocket.
Registered Retirement Income Fund (RRIF)
Finally, a Registered Retirement Income Fund (RRIF) is another tax-advantaged account, but it functions differently from savings accounts like a TFSA or RRSP. Instead of accumulating savings, an RRIF is designed to provide income during retirement while maintaining tax-deferred growth.
Here’s how it works:
- When you turn 71, you must convert your RRSP into an RRIF (or another retirement income option) because the government doesn’t allow funds to stay in an RRSP indefinitely.
- Your investments continue to grow tax-free inside the RRIF, just like in an RRSP.
- However, you must start withdrawing a minimum amount each year, which is considered taxable income.
The main tax advantage is that your investments keep growing tax-free until withdrawn, and since most retirees are in a lower tax bracket, they often pay less tax on their withdrawals than they would have during their working years. So while an RRIF doesn’t let you contribute like an RRSP, it still provides tax benefits by deferring taxes on growth and spreading out withdrawals over time.
Open a tax-advantaged savings account with Oaken Financial today
There are many types of tax-advantaged savings accounts available, so it’s important to do your research to help you decide which one is right for you. To start saving with Oaken Financial, you can book an appointment for an in-person chat, call us at 1-855-OAKEN-22 (625-3622), or if you prefer, you can open a TFSA, RSP, or RIF easily in as little as five minutes.