So I recently started both a Tax Free Savings Account (TFSA) and a Retirement Savings Plan (RSP), both with ING Direct Canada. They have different tax benefits
- Contributions to a TFSA are taken from post-tax income, and is tax-free when you withdraw money.
- Contributions to a RSP are taken from pre-tax income, and is taxed when you withdraw money.
This essential means that it's best to contribute money to
- a TFSA early in life, because you will have a low income (your tax bracket will be lower)
- an RSP later in life when your income grows (your tax bracket will be higher)
However, I don't necessarily think I should worry about these things too much as long as I am saving something. The tax-benefits of either may change in the 30 years I have to retirement.