As many young Canadians head to college and university, some will be able to rely on a registered education savings plan (RESP) to help cover costs. RESP holders also benefit from the federal government’s 20% matching grant on qualifying contributions up to the program’s limit, one of several tax‑advantaged savings incentives Canada uses to encourage planning for major life goals such as education, retirement and buying a first home.
Financial advisers often recommend using the full contribution room available across registered accounts when possible. But with rising unemployment, higher living costs and ongoing economic uncertainty, many Canadians must make difficult decisions about how to divide limited savings among competing priorities.
Participation statistics show how many people face that choice. In 2023, Statistics Canada reported that 11.3 million tax filers contributed to either a registered retirement savings plan (RRSP) or a tax‑free savings account (TFSA), roughly half of the labour force that year. Only 2.5 million filers contributed to both an RRSP and a TFSA, and about 484,000 filers contributed to the first home savings account (FHSA), which was introduced in 2023.
Given the variety of registered accounts, advisers say it’s essential to map goals and timelines before allocating cash. The first step is to establish how much you can comfortably set aside, advises Jordan Damiani, a senior wealth adviser at Meridian Credit Union. “Start with the surplus funds you’re comfortable saving,” he says.
For some people that means returning to basic budgeting to identify available savings. For others, a quick review confirms whether the current savings rate still makes sense. After that, consider the time horizon for each goal and expected future income, Damiani adds. Those factors will determine which account or accounts make the most sense.
TFSAs offer young people the most flexibility
For younger Canadians — students and those early in their careers — the TFSA often provides the greatest flexibility. Unlike accounts that focus on tax‑deductible contributions, a TFSA lets savers grow funds in a tax‑free environment while keeping withdrawals available for emergencies or changing plans.
Despite the name, TFSA funds are not limited to cash: they can be invested in stocks, exchange‑traded funds (ETFs), bonds and other registered investments to boost tax‑free gains. Contribution room begins to accumulate at age 18 once a person has a social insurance number; for this year the annual contribution amount began at $7,000.
“Treat the TFSA as your liquid, flexible bucket — your emergency fund — and then get more specific about separate goals,” Damiani recommends. Because withdrawals from a TFSA do not trigger tax consequences, it’s an attractive starting point for many younger savers who need access to funds or want the freedom to change their plans.
A TFSA savings account option that earns interest tax‑free.
A guaranteed investment certificate held inside a TFSA provides predictable returns.
Consider opening a TFSA with an online brokerage to access ETFs and self‑directed investing tools.
Open an FHSA now to secure contribution room
If you are confident you want to buy a home, opening a first home savings account (FHSA) can be worthwhile. The FHSA allows tax‑deductible contributions up to $8,000 per year, with a $40,000 lifetime limit. Contributions reduce taxable income now, and qualified withdrawals to purchase a first home are tax‑free.
There are trade‑offs. Funds in an FHSA are intended for home purchases, and withdrawing for other needs can carry restrictions or penalties. “If someone starts by putting money into an FHSA but then faces an emergency or needs a car, they may not be able to access those funds without consequences,” Damiani notes. That’s why it’s important to weigh flexibility against tax savings.
If you’re uncertain about timing, you can open an FHSA to begin accumulating contribution room even if you don’t immediately deposit funds. Alternatively, savers can use an RRSP to build a down payment: under the home buyers’ programs, up to $60,000 can be withdrawn from an RRSP for a home purchase, though those amounts generally must be repaid over time.
Timing matters. If you expect a home purchase in the next few years, it may make sense to budget contributions across several years to reach the FHSA lifetime limit. Similarly, if a beneficiary is nearing the age limit for RESP grant eligibility — the federal match is only available until the end of the calendar year the beneficiary turns 17 — you may want to prioritize RESP contributions to capture the government grant.
“When do you want this money available? That question will determine which registered account is most appropriate,” says Sara Kinnear, director of tax and estate planning at IG Wealth Management. Kinnear also points out creative ways to stretch savings: contribute to an RRSP or FHSA to generate a tax refund during tax season, then redeploy that refund toward other goals like a TFSA or RESP.
Working with a financial adviser can help map timing and allocations for multiple objectives. In general, the sooner you start saving in registered plans, the more time your savings have to grow on a tax‑deferred or tax‑free basis. That compounding advantage is a key reason to begin early and be consistent with contributions.
Read more about investing:
- Buying ETFs in Canada Tool: The MoneySense ETF Screener
- The best GIC rates in Canada
- Should you sell stocks to simplify with an all‑in‑one ETF?
- ETFs are great for diversification, but check their holdings carefully