It wasn’t too long ago that anyone wanting to save money for the future – particularly for retirement – in a tax-sheltered environment had essentially one choice: the Registered Retirement Savings Plan (RRSP). Starting in 2009, an additional option became available: the Tax-Free Savings Account (TFSA). A glance at the following graph reveals that Canadian families quickly made the TFSA their favourite savings vehicle. 

And now there’s another new option that came on the scene two years ago: the First Home Savings Account (FHSA). Decisions, decisions! Here are some useful points to consider. 

The FHSA 

Let’s start with the brand new FHSA, launched in April 2023. This is an account where, starting at age 18, you can deposit up to $8,000 a year, to a lifetime limit of $40,000. This money is intended for the purchase of a first home… or for retirement, as we’ll see later on. 

If you don’t use all of your contribution room in a given year, the unused portion can be carried forward to the next year, but the amount is not cumulative. The total amount carried forward cannot exceed $8,000. For example, if you didn’t make any contributions for three years, you could only carry forward $8,000, not $24,000 (3 X $8,000). 

The FHSA offers a number of tax advantages. First, your contributions are tax deductible and, as long as the money stays in the account, all of the investment income generated is sheltered from tax. As well, when you use the accumulated funds to buy a qualifying first home, your withdrawal will also be tax exempt. 

You have fifteen years or until age 71, whichever comes first, to withdraw the money. What happens if you don’t buy a qualifying property? Here’s another advantage: you can roll the funds into your RRSP, tax free. 

In practice, this means that you can also use the FHSA with an eye to retirement – a feature that would be particularly interesting for those who already max out their RRSP contribution room.  

The RRSP 

The RRSP has been in existence since the late 1950s and has already helped several generations of Canadians to grow their assets. This account was designed specifically with retirement in mind… but it, too, can be used to help finance the purchase of a first home.  

If you have earned income, you can open an RRSP. You can contribute up to 18% of your earned income from the previous year, within an annual limit. For 2024, this limit was $31,560; for 2025, it will be $32,490. Unused contribution room can be carried forward to future years, and is cumulative. To help you keep track of how much contribution room you have, the Canada Revenue Agency (CRA) includes your total on your assessment notice for each year (this information is also available through the My Account feature of the CRA website). 

As with the FHSA, RRSP contributions are tax deductible and their growth is tax sheltered. This money is only taxed when you withdraw it. Your RRSP can remain open until the end of the year in which you turn 71. At that time, you must convert it into a registered retirement income fund (RRIF) or an annuity and make taxable withdrawals every year. 

But in the meantime, you can also make a tax-free withdrawal to help finance the purchase of a first home under the Home Buyers’ Plan (HBP). This withdrawal of up to $60,000 is a sort of loan taken from your RRSP, however, you will have to repay it within fifteen years. For more information about the HBP, read this article. 

Note that there is another plan similar to the HBP, not for people looking to buy a first home, but for those who want to go back to school: the Lifelong Learning Plan (LLP). Find out more in this article. 

The TFSA 

Finally, the TFSA is a savings account where, starting at age 18, you can invest the amount of your choice, up to an annual limit. Since 2024, this limit has been $7,000 a year. The contribution room is cumulative from year to year. For example, if you didn’t use any of the $7,000 in contribution room you were entitled to in 2024, this amount will be added to the $7,000 you are entitled to contribute in 2025. The total cumulative amount that you can contribute to a TFSA depends on the year you turned 18. For anyone who was already 18 when the plan was created in 2009, total is now $102,000. Otherwise, given that the contribution limits have varied over the years, the simplest thing is to consult the Canada Revenue Agency website or your CRA online account.  

TFSA contributions are not tax deductible. On the other hand, the funds are tax-sheltered as they grow and withdrawals are not taxable. Another advantage is that withdrawals can be made at will. Even better: any amounts you withdraw are added to your contribution room for the following year.  

Note that a TFSA can be held for as long as you live. 

Wrapping it up 

The following table compares the main features of these three tax-efficient plans designed to save funds for retirement… or other things. 

Round out this overview by taking a look at these articles about two other tax-efficient products designed to meet specific needs: 

• the registered education savings plan (RESP), to finance future postsecondary studies for your children or grandchildren; and  

• the registered disability savings plan (RDSP), to meet the future needs of someone living with a disability. 

The beauty of all these solutions is that they are not mutually exclusive: they can be integrated into a plan specifically designed to meet the needs of you and your family. Your advisor can provide you with more information about this.