There are many differences between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). The benefits of each should be considered before deciding to invest inside either.RRSP contributions are tax-deductible, while the TFSA is not. This means the amount that is contributed to the RRSP is deducted from your total income for the year and reduces your current income taxes payable. Many individuals prefer the RRSP for this reason alone. If you currently find yourself in a high tax bracket, the RRSP is likely the most beneficial option for you.
As mentioned, contributions to a TFSA are not tax-deductible. However, while a deduction is not granted on your personal tax return, the income is not taxed when withdrawn from the account. If you expect to receive pension income in your retirement, the TFSA may be the best option.
Both the RRSP and the TFSA provide a tax-shelter for your investments. This means investment income (dividends, interest, capital gains etc.) that is earned inside the account is not taxed as it is earned. Rather, the income earned inside an RRSP is reported upon withdrawal (ideally in retirement when income levels are usually at their lowest).
As the name suggests, any investment income earned inside a TFSA is tax-free and is not reported on your personal tax return. Not when earned, or withdrawn from the account.
Always speak with your tax professional to find the best strategy that works for your tax situation.