RRSP, TFSA, FHSA, RESP: Which registered accounts should you use?

They will also be benefitting from the 20% match on contributions to the plan, up to a set limit, because like other registered savings options, the government offers incentives for people to save for major life goals like school, retirement, and buying a first house.

Financial advisers say that ideally, Canadians want to max out the contribution room on all of their savings plans, but with unemployment, the cost of living, and overall economic uncertainty on the rise, that’s increasingly hard to do, requiring some tough choices on how to sprinkle savings across the various options.

It’s clear few savers manage to add to them all, if they’re able to put anything away in the first place. Statistics Canada data shows that in 2023, 11.3 million tax filers contributed to either a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA), which is about half the labour force that year. Of those, only 2.5 million contributed to both. About 484,000 tax filers also contributed to the first home savings account (FHSA) that launched in 2023.

Given the range of options available, advisers say it’s key to map out your goals and timelines when trying to allocate your cash on hand. But the first step is knowing how much you have to work with, said Jordan Damiani, a senior wealth adviser at Meridian Credit Union. “You start with what are your surplus funds that you’re comfortable saving,” he said.

For some, this might first mean going though basic budgeting, especially if they’re struggling to put money aside, while others will just need to double-check that the amount they’re already putting aside still makes sense. From there, savers need to look at the time horizon for their various goals, as well as their income expectations, said Damiani.

TFSAs offer young people the most flexibility

For younger Canadians, the TFSA often makes the most sense because it offers the most flexibility, and those in school or just starting their careers don’t need the benefit as much from the tax deductions offered by other registered accounts, he said.

Despite the TFSA’s name, it’s important to remember money in that account can be put into investments like stocks, exchange-traded funds (ETFs), and bonds to boost the growth of tax-free gains. The contribution room for TFSAs start to accumulate when someone with a social insurance number turns 18, with the starting amount set at $7,000 this year.  

“You always kind of start with a TFSA to say, OK, this is your emergency fund, this is your most liquid bucket, and then you start getting a little bit more specific about goals,” said Damiani.

Open an FHSA now to get the contribution room

If someone is sure they want to buy a house, they can open a FHSA, which offers tax deductions for any contributions, which are limited to $8,000 per year up to a total of $40,000.

“If you’re starting by putting the money in a first home savings account and they have a life emergency or they want to buy a car, you’re not able to take that money out without penalty to cover those costs. So it’s a balance.”

If unsure, it’s possible to open an account and start to accumulate the contribution room without actually adding money to the account, said Damiani. A saver could also put money into their RRSP to save for a house, since up to $60,000 can be withdrawn from the plan to go toward a home (but eventually has to be put back in).

Knowing the timing is important. If a home purchase is potentially in the cards in the next few years, it’s possible to set a budget to maximize the contributions over the next five years to fully take advantage of the $40,000 lifetime limit. 

Similarly, if a future student is getting closer to the cut-off for the federal government’s match on RESP contributions, which are only available until the end of the calendar year that a beneficiary turns 17, then it can make sense to direct more money there.

“When do you want to have this money available to you? Because that’s going to dictate realistically which type of registered account you want to use,” said Sara Kinnear, director of tax and estate planning at IG Wealth Management.

She said that when unable to contribute to all the accounts, there are ways to get creative in adding funds. One option is to contribute to an RRSP or FHSA, with the expectation that you’ll generate a tax refund during the income tax filing season, which you can use to fund other savings goals.

Speaking with a financial adviser can help figure out the timing and money allocation, said Kinnear, and generally speaking, the earlier the better in starting to save for any goal. “For all of these types of plans, the longer you can have it sitting in there working for you, the better, because all of these registered plans, the funds are growing on a tax-deferred basis and you benefit from that by having them in there a long time.”