Millennials: TFSA vs RRSP Investing in 2021

The two most popular registered accounts in Canada are the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Account (RRSP). Older investors will be more familiar with the RRSP, which was introduced in 1957.

The TFSA, on the other hand, was launched in January 2009. Which is the better account for millennials?

Why you should stick with the TFSA

The TFSA is a terrific vehicle for growth as it eliminates all capital gains.

Millennials have a long-time horizon and should be targeting stocks that are more growth-oriented. Better yet, the cumulative contribution rate in a TFSA rose to $75,500 in 2021. That is a good amount of room to go forward with for young investors. The TFSA also offers terrific flexibility.

Millennials will not be penalized for taking profits and withdrawing cash from their TFSA. This makes this new account more palatable for investors who want the freedom to dip in and out of their account funds at their leisure.

Here’s a good reason to focus on an RRSP

The TFSA may have overtaken the RRSP in terms of popularity, but that does not mean you should ignore this older account. Millennials who invest in an RRSP can still take advantage of tax-free capital growth and income generated in their portfolio. Investors who contribute to an RRSP also receive a tax break in that given tax year.

When you reach retirement age, you may begin to draw on your portfolio which can be converted into a RRIF.