The Registered Retirement Savings Plan (RRSP) and Tax Free Savings Account (TFSA) provide tax efficiency to the Canadian saver. TFSAs and RRSPs both offer tax advantages to help you reach your savings goals.
The RRSP is primarily for retirement savings. The TFSA can be used for retirement savings and other purposes. RRSP contributions are tax deductible, and are intended to be tax efficient on withdrawal during retirement. TFSA contributions are made with after tax dollars, but are tax free upon withdrawal.
With both TFSAs and RRSPs, you can name your spouse as the beneficiary. The money will roll over to them upon your death. But with an RRSP, after your spouse dies, taxes will be due on any money left in the account. If your children inherit the money, they will receive what is left after the tax is paid. With a TFSA, only the increase in the value of the TFSA since the date of death is taxed in the year the children receive it. If the amount they receive is not greater than the value of the TFSA at death, no tax is paid.