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RRSP vs TFSA: Which Should Canadians Fill First?
The short answer: an RRSP gives you a tax deduction now and taxes the money when you take it out, so it wins when your tax rate today is higher than it will be in retirement. A TFSA gives no deduction, but growth and withdrawals are tax-free, so it wins when your rate today is lower. When the two rates are about the same, the tax result is a tie, and the TFSA’s flexible withdrawals usually make it the better pick. Many Canadians use both: an employer RRSP match first, then whichever account fits their bracket, and a First Home Savings Account (FHSA) if they are saving to buy a first home.
The accounts side by side (2026)
| RRSP | TFSA | FHSA | |
|---|---|---|---|
| New room for 2026 | 18% of last year’s earned income, up to $33,810, minus any pension adjustment from a workplace plan | $7,000 | $8,000 a year, $40,000 lifetime |
| Deduction when you pay in | Yes | No | Yes |
| Tax on growth | None while inside | None | None |
| Tax on withdrawals | Taxed as income | None | None for a qualifying first home |
| Room after a withdrawal | Lost for good | Added back on January 1 of the next year | Not restored |
| Deadline | Must be closed (usually turned into a RRIF) by the end of the year you turn 71 | None | Closes at the earliest of 15 years, the end of the year you turn 71, or the end of the year after your first home withdrawal |
The table shows the standard rules. Your own room can be higher or lower (for example after a pension adjustment reversal when you leave a workplace plan), so the RRSP deduction limit on your latest notice of assessment is the number to use.
Unused room carries forward in all three accounts. FHSA room only starts building once you open an account, and you can carry forward at most $8,000 of it, so open one early if you might buy a home. Someone who has been 18 or older and resident in Canada every year since 2009 has $109,000 of TFSA room in 2026 if they have never contributed. CRA My Account shows your room, but its TFSA figures are only updated once a year, in spring, so add up any contributions and withdrawals you have made since then yourself. Going over your TFSA room is taxed at 1% a month on the excess.
How to choose: compare tax rates
The maths is the same as the US Roth versus traditional choice. If your marginal tax rate now equals your rate in retirement, both accounts leave you with exactly the same amount after tax. The difference comes from the gap between the two rates:
- Higher income now, lower in retirement (most mid-career earners in higher brackets): the RRSP usually comes out ahead. The deduction saves tax at a high rate and the withdrawals are taxed at a lower one.
- Lower income now (students, early-career, a year off work): the TFSA usually wins, and you can save RRSP room for later, higher-earning years when the deduction is worth more.
- Lower-income retirees: RRSP and RRIF withdrawals count as income and can reduce income-tested benefits such as the Guaranteed Income Supplement, and high withdrawals can trigger the Old Age Security recovery tax. TFSA withdrawals do not count as income for either.
Remember to invest the tax refund from an RRSP contribution. If you spend it, a TFSA would have left you better off.
A simple order of priorities
- Get the full employer match in a group RRSP or pension plan. It is an instant return no other account offers.
- Build an emergency fund. A TFSA is a good home for it, since withdrawals are tax-free and the room comes back next year.
- Buying a first home? Use an FHSA: it combines the RRSP’s deduction with the TFSA’s tax-free withdrawal. The withdrawal is only tax-free if you have a written agreement to buy or build the home and plan to live in it within a year; the CRA lists the full conditions. The RRSP Home Buyers’ Plan also lets you borrow up to $60,000 from your RRSP for a first home, to be repaid over 15 years.
- Then fill the RRSP or the TFSA according to your tax bracket, as above.
Our Roth vs Traditional guide covers the same trade-off with US accounts, and the FI Number calculator works in Canadian dollars to show how much you need in total.
Common questions
Should I contribute to an RRSP or a TFSA first?
Take any employer RRSP match first. After that, the RRSP usually wins if your tax rate now is higher than you expect in retirement, and the TFSA wins if your rate now is lower. If the rates are about the same, the tax result is a tie, and the TFSA’s flexibility usually tips it.
What is the TFSA limit for 2026?
New TFSA room for 2026 is $7,000. Someone who has been eligible every year since 2009 and never contributed has $109,000 of total room.
What is the RRSP limit for 2026?
Your new RRSP room for 2026 is 18% of your 2025 earned income, up to a maximum of $33,810, plus any unused room carried forward and minus any pension adjustment.
Do TFSA withdrawals affect Old Age Security?
No. TFSA withdrawals are not taxable income, so they do not reduce the Guaranteed Income Supplement or trigger the Old Age Security recovery tax. RRSP and RRIF withdrawals do count as income.
Related guides
The linked Retirement assessment uses U.S. J.P. Morgan age-and-income checkpoints and Social Security assumptions. It is not calibrated to this country’s pensions or taxes; use local account statements and a spending-based plan for retirement decisions.
Sources
- Tax-Free Savings Account (TFSA), Canada Revenue Agency
- Withdrawing from a TFSA, Canada Revenue Agency
- RRSPs and related plans, Canada Revenue Agency
- First Home Savings Account (FHSA), Canada Revenue Agency
- Saving for the future, Canada Revenue Agency
This guide is for informational and educational purposes only. It is not financial, medical, legal, or tax advice. Consult a qualified professional for guidance specific to your situation.
Work out how much you need with the FI Number calculator →
See how your plan scores in the Retirement assessment →