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TFSA vs RRSP: Which Should You Use First? (Canada)

Which account leaves you more comes down to your tax rate now against your tax rate when you take the money out.

By Nate Sorensen Reviewed for accuracyUpdated Sep 202614 min read
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You've got money to put away and two accounts to choose from. You're really comparing two numbers here. Your tax rate today, and your tax rate on the day you take the money back out. If your rate will be lower in retirement, the RRSP leaves you with more. If it'll be higher, or you honestly can't tell yet, the TFSA does. And if the rate turns out to be the same at both ends, you finish with exactly the same amount whichever account you used.

Key takeaways

  • You're comparing what you pay on this dollar today against what you'll pay on it the year you withdraw.
  • At an unchanged rate, the two accounts leave you with the identical amount. They only pull apart when your rate moves.
  • With the RRSP you take a deduction now and pay tax later. With the TFSA you pay the tax first and owe nothing at the end.
  • What you take out of a TFSA isn't income, so it can't cut your Old Age Security, your Guaranteed Income Supplement, or GIS, or your child benefit. What you take out of an RRSP is income, and it can cut all three.
  • If you've got an employer match sitting unused, most people fill that before they touch either account.

One is taxed going in, the other coming out

A registered retirement savings plan, your RRSP, gives you a deduction for whatever you put in. Contribute $1,000 and your taxable income for the year falls by $1,000, so you get the marginal rate back on it. Nothing's taxed while it sits there. Then every dollar you draw out later counts as income in the year you draw it, at whatever rate you're paying by then.1

A tax-free savings account, your TFSA, works the other way around. You fund it with money you've already paid tax on, and there's no deduction for it.2 Nothing's taxed there either. When you withdraw, nothing's taken off and nothing shows up on your return.

You get identical treatment in the middle from both. Neither one touches your interest, dividends or capital gains for as long as the money stays put. If you'd like to know how each of those is treated outside a registered account, how investment income is taxed in Canada covers each of them. So the two accounts only differ at the ends. You're choosing which year you hand over the tax, and therefore which rate you pay on it.

Where the tax happens in each account
When each account takes its taxTwo rows and three columns. For an RRSP, money going in is not taxed because you get a deduction, growth inside is not taxed, and money coming out is taxed as income. For a TFSA, money going in has already been taxed, growth inside is not taxed, and money coming out is not taxed. Both accounts leave the middle stage alone; they take the tax at opposite ends.Going inWhile it growsComing outRRSPNo taxyou get a deductionNo taxTaxed as incomeat your rate that yearTFSAAlready taxedno deduction for itNo taxNo taxnothing on your returnthe tax happens herenothing taken
Both accounts leave your growth alone. They take the tax at opposite ends.
Source CRA, Making withdrawals (RRSP) and What is a TFSA. See sources 1 and 2.

Will your tax rate be lower when you retire?

For most people, yes, and that's the whole case for the RRSP. You're likely earning more now than you'll be drawing later, so your deduction at today's rate saves you more than the tax you eventually hand back at a lower one.

Here's what that's worth to you in money. Suppose you live in Alberta and you're taxed on $90,000 this year, which puts your marginal rate at 30.5%.3 You have $1,000 of income before tax to save, you don't touch it for twenty years, and it grows at 5% a year.

Send it to your RRSP and all $1,000 lands there, because your deduction gives you the tax back. In twenty years you're looking at $2,653, and you still owe tax on every cent.

Send it to your TFSA and you pay your 30.5% first, so only $695 lands there. In twenty years you're looking at $1,844, and you keep all of it.

Which one served you better depends entirely on your rate the year you withdraw:

  1. If your rate drops to 22%, roughly $50,000 of taxable income in Alberta, you finish with $2,070 from the RRSP against $1,844 from the TFSA. You're $226 ahead in the RRSP.

  2. If your rate is still 30.5%, the RRSP leaves you $1,844 as well. You end up with the same figure to the cent, and that isn't a coincidence. Whenever your rate matches at both ends, the arithmetic gives you the identical answer.

  3. If your rate has climbed to 36%, around $130,000 of taxable income, you finish with $1,698 from the RRSP, and you're $146 better off in the TFSA.

What $1,000 of pre-tax income is worth after twenty years
The same pre-tax dollar in an RRSP and a TFSA, at three different retirement tax ratesThree pairs of bars. One thousand dollars of pre-tax income is saved for twenty years at five percent, starting from a thirty point five percent tax rate today. If the withdrawal rate falls to twenty-two percent, the RRSP is worth two thousand and seventy dollars against the TFSA's one thousand eight hundred and forty-four, so the RRSP is two hundred and twenty-six dollars ahead. If the rate stays at thirty point five percent, both come to one thousand eight hundred and forty-four dollars, exactly the same. If the rate rises to thirty-six percent, the RRSP is worth one thousand six hundred and ninety-eight dollars and the TFSA is one hundred and forty-six dollars ahead.RRSPTFSA$2,000$1,000$0$2,070$1,844Your rate falls to 22%RRSP ahead by $226$1,844$1,844Your rate stays 30.5%identical, to the cent$1,698$1,844Your rate rises to 36%TFSA ahead by $146Starting from $1,000 of income before tax, at a 30.5% rate today.Illustrative growth of 5% a year for twenty years.
Illustrative. The $1,000, the 5% growth rate and the twenty-year run are round assumptions; the tax rates are the real 2026 Alberta combined rates. The RRSP figures assume the $305 refund is invested too.
Source Rates: CRA 2026 federal and Alberta brackets. Growth rate and horizon illustrative. See source 3.

That arithmetic only holds if you save the refund as well. The comparison starts from $1,000 of income before tax, so the RRSP side assumes the $305 you get back in the spring goes into the account too. If you spend it, your RRSP has only the same $695 working for you that a TFSA would, plus a tax bill still to come. Most people who finish behind in an RRSP got there that way.

Your income, your province and your own guess at a retirement rate all move these figures, so your own figures are the ones that matter. You can run your own numbers and see where they land.

What if you have no idea what your rate will be?

Then you're where nearly everyone under forty is, and you aren't being careless about it. Your income in thirty years depends on a career you haven't had yet.

Your TFSA handles that uncertainty better, for three plain reasons. You can't be wrong in a way that costs you, because no bill is waiting for you at the end. Your unused RRSP room carries forward with no expiry, so you lose nothing by leaving it alone. And you can put money into an RRSP now and hold the deduction back, because you're allowed to claim unused contributions from an earlier year whenever your rate suits you better.4

That third one matters if you've already funded an RRSP in a low-income year. You've made your contribution, but you haven't claimed your deduction, and it'll buy you more the year you earn more.

Nobody knows what your marginal rate will be in 2056. You can pin down two things this week though. The rate you're on now, and the room you're sitting on in each account. The Canada Revenue Agency prints the RRSP number on the notice of assessment it sends you every year.

Do you have to pick just one?

No, and most people don't. You have separate room in each, so they never compete for the same dollar of yours, and splitting what you save between them every year is completely ordinary.

Holding both gets you something one account alone can't. You reach retirement with money you can draw without adding a cent to your taxable income, sitting beside money whose deduction you already banked. Each year you choose which one to draw from, so you get a say in what your income adds up to.

If you can only fund one this year, most people decide it on those two rates.

The same question at four incomes

Where you land moves with your income. Maya, Nadia and Theo, Frank and Joanne sit at four different points in it.

Maya, 24, first full-time job. Her taxable income keeps her inside the lowest federal band, under $58,523,3 so her marginal rate is about as low as it'll ever be and a deduction is worth correspondingly little. Her income has a long way to climb. She puts what she can spare into the TFSA and lets the RRSP room stack up for the years when it's worth more. "The Calm Account," where Maya's first savings account covers a bad week.

Nadia and Theo, 36 and 38, two young kids. Their adjusted family net income lands between $38,237 and $82,847, which is the range where the Canada Child Benefit starts getting reduced. With two children it drops by 13.5 cents for every dollar over the bottom of that range.5 An RRSP deduction lowers the very income that benefit is worked out on. So while they sit inside that band with two eligible children, a dollar into the RRSP is worth about 44 cents to them at a 30.5% marginal rate, not 30.5 cents. Nothing they put in the TFSA will move that number. "Treading Water," where the two of them finally look at the whole month together.

Frank, 52, runs his own incorporated business. No employer match and no pension, so both accounts are on him. He sets his own salary, which gives him more say over his marginal rate than an employee gets, and his RRSP room only grows on that salary, never on dividends.4 On a $100,000 salary, illustrative, that's $18,000 of new room he'll have the following year. In a strong year he takes the deduction. In a lean one he funds the TFSA and leaves the room where it is.

Joanne, 61, four years out from retiring. Her rate at work is still higher than the rate she expects on a pension, so she still gets more back from an RRSP deduction for now. She's also working on what her income looks like after 65. An RRSP has to be wound up by the end of the year you turn 71, and most people move it into a registered retirement income fund, a RRIF. Money drawn from a RRIF counts toward the Old Age Security recovery tax. That starts at $95,323 of net world income for the 2026 income year and reclaims 15% of everything above it.613 Her TFSA withdrawals count for none of it.

None of those four is a rule. They're four sets of numbers, and yours will sit somewhere among them.

What can outrank the tax question

You're buying a first home. Neither of these is your best account for it. A first home savings account, your FHSA, gives you the deduction your RRSP would and the untaxed withdrawal your TFSA would, up to $8,000 a year and $40,000 in total.7 You can also take up to $60,000 out of your RRSP under the Home Buyers' Plan, though you've got to pay that one back into the plan.8

Your spouse or partner earns much less than you. You can fund their RRSP and claim the deduction yourself, right up to their own 71 cut-off.4 They draw it later as their income at their rate, provided you haven't paid into any of their plans in the year they withdraw or in the two years before that. If you've paid in inside that window, all or part of what they withdraw is taxed back in your hands instead, capped at what you contributed over those three years.9

You're getting close to 71. RRSP contributions stop at December 31 of the year you turn 71.4 A TFSA has no upper age limit, so it stays open to you after that.

Where in Canada you live. Your marginal rate is federal plus provincial, so you and someone earning the same salary in another province get different amounts back from an identical contribution.

There's a limit to how far you can work any of this out in advance. Your rate in retirement depends on a pension you may not have started, a Canada Pension Plan amount, your CPP, that shifts with when you claim it, and tax rules that'll change on you. You can know today's rate and today's room, and most people decide on those two and look again when their income moves.

What does taking the money back out cost you?

Not the same thing at all. Say you take out $10,000, a round number to keep this concrete. It reaches you whole from a TFSA and about $2,000 lighter from an RRSP, and the tax is only half of the difference.

Withdraw $10,000 from a TFSA and you receive $10,000. Nothing's withheld, nothing lands on your return, and the full $10,000 comes back as new contribution room the following January 1.10

Withdraw $10,000 from an RRSP and 20% is held back before the money reaches you. The rate is set by the size of the whole withdrawal, not sliced up across bands. It's 10% up to $5,000, 20% over $5,000 and up to $15,000, and 30% above that.11 Whatever comes off is only a first instalment, not the bill. The whole $10,000 goes on your return as income, and if your marginal rate is above 20% you'll owe the difference in April.

The room doesn't come back either. The formula for TFSA room includes everything you withdrew the year before.10 The formula for the RRSP deduction limit has no line for withdrawals in it at all.4 So if you take $10,000 out of an RRSP at 40, that's $10,000 of room gone for good. The Home Buyers' Plan and the Lifelong Learning Plan are the two exceptions, and you repay both of them on a schedule.12

Taking $10,000 out of each account
What a ten thousand dollar withdrawal costs from a TFSA and from an RRSPTwo rows. Withdrawing ten thousand dollars from a TFSA pays you ten thousand dollars, adds nothing to your tax return, and returns ten thousand dollars of contribution room on January the first of the next year. Withdrawing ten thousand dollars from an RRSP pays you eight thousand after twenty percent is withheld, adds the full ten thousand to your taxable income, and the contribution room is gone permanently.You receiveOn your tax returnThe roomTFSA$10,000nothing withheld$0it isn't incomeBack on January 1all $10,000 of itRRSP$8,00020% withheld up front$10,000the full amount, as incomeGone for goodyou can't rebuild itthe room you can't rebuildWithholding shown at the 20% band.The Home Buyers' Plan and the Lifelong Learning Plan are the exceptions, and both are repayable.
Most people expect the tax difference. Fewer expect the contribution room to behave differently too.
Source The $10,000 is an illustrative round amount. The withholding rate, the room rules and the tax treatment are all sourced: CRA, Withdrawing from a TFSA; Tax rates on withdrawals; How contributions affect your RRSP deduction limit. See sources 4, 10 and 11.

The honest split

Most people with room in both put something into each, because the two accounts answer different questions and neither is a bad home for a dollar in any given year.

Early in a career most people lean to the TFSA. Your rate is the lowest it'll ever be, so a deduction buys the least it ever will, and the RRSP room keeps until it's worth more.

That flips in your peak earning years. The distance between your rate now and your likely rate later is at its widest then, so a deduction buys you the most it ever will.

Closer to retirement, people who already have a pension coming often lean back toward the TFSA, because what they draw from it doesn't touch Old Age Security, the Guaranteed Income Supplement, or the rate they pay on everything else.

?

Common questions

Is it worth contributing to an RRSP if my income is low?

Your deduction is worth your marginal rate, so at a low rate it buys you very little. You can still put the money in now and claim your deduction in a later year when you're earning more, because your unused contributions from an earlier year stay deductible. In a low-income year most people fund the TFSA and let their RRSP room carry forward.

What happens if I put too much in?

Both charge you 1% a month, but your TFSA gives you nothing at all and your RRSP lets you be $2,000 over before the tax starts. Your TFSA tax is also worked out on the highest excess in your account in each month it stays there, so taking part of it out mid-month won't reduce what you owe for that month.

Does a TFSA withdrawal affect my Old Age Security or my GIS?

No. What you take out of your TFSA isn't income, so it doesn't count toward the Old Age Security recovery tax, the Guaranteed Income Supplement, Employment Insurance, or your eligibility for the Canada Child Benefit and the GST credit. What you take out of an RRSP or a RRIF counts toward all of them.

Can I move money straight from my RRSP into my TFSA?

You can't transfer it directly. Taking it out of your RRSP is a withdrawal, so tax is withheld, the full amount goes on your return as income, and your RRSP room disappears. Whether you come out ahead anyway depends on your rate that year against the rate you'd otherwise pay later.

Which account should I use to save for a first home?

Usually neither. A first home savings account gives you your RRSP deduction and your TFSA's untaxed withdrawal at the same time, up to $8,000 a year and $40,000 in total. You can also take up to $60,000 out of your RRSP under the Home Buyers' Plan, though you've got to pay that back.

Do I lose RRSP room if I don't use it this year?

No. Your unused room carries forward with no expiry, which is why leaving it alone in a low-income year costs you nothing. Your one deadline is age. Contributions stop in the year you turn 71, on the last day of December, and any room you've got left doesn't survive that for your own plan.

Sources

  1. CRAMaking withdrawals (RRSP): "you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan." RRSP income is reported on line 12900. [Page modified 2026-01-29; verified live 2026-09-02.]
  2. CRAWhat is a TFSA: contributions are not tax deductible, unlike an RRSP; and income earned in a TFSA and amounts withdrawn from it do not affect federal income-tested benefits and credits, naming Old Age Security, the Guaranteed Income Supplement, Employment Insurance, the Canada child benefit, the Canada workers benefit and the GST credit. [Page modified 2026-07-21; verified live 2026-09-02.]
  3. CRACurrent year tax rates and income brackets (2026). The 22%, 30.5% and 36% combined rates used here are the federal rate plus the Alberta rate at $50,000, $90,000 and $130,000 of taxable income. [Brackets verified 2026-08-25; combined rates computed 2026-09-02.]
  4. CRAHow contributions affect your RRSP deduction limit: the deduction-limit calculation, which contains no term for withdrawals; the deduction of unused contributions from a previous year; and the December 31 deadline in the year you or your spouse turn 71. [Verified live 2026-09-02. Note this page states the 2025 annual limit inline; the 2026 figure comes from CRA's limits table.]
  5. CRACanada child benefit, how much you can get: payments are calculated on adjusted family net income, and for two eligible children the benefit is reduced by 13.5% of income over $38,237, up to $82,847. Figures are for the July 2026 to June 2027 payment period and are recalculated each July. [Verified live 2026-09-02.]
  6. CRAIndexation adjustment for personal income tax and benefit amounts: the old age security repayment threshold by income year, $95,323 for 2026, $93,454 for 2025, $90,997 for 2024 and $86,912 for 2023. Accessed 2026-09-06.
  7. CRAFirst Home Savings Account (FHSA): $8,000 of participation room in the first year, contributions generally deductible, and a $40,000 lifetime limit in the participation-room calculation. [Pages modified 2026-02-02; verified live 2026-09-02.]
  8. CRAThe Home Buyers' Plan: the withdrawal limit is $60,000, and the amount is repayable to the RRSP. For a first withdrawal made between January 1, 2026 and December 31, 2028, the 15-year repayment period starts in the fifth year following the withdrawal. [Page modified 2026-02-17; verified live 2026-09-02.]
  9. CRAWithdrawing from spousal or common-law partner RRSPs: amounts withdrawn are included in the contributor's income where the contributor paid into any of the annuitant's plans in the year of withdrawal or in the two preceding years. [Verified live 2026-09-02.]
  10. CRAWithdrawing from a TFSA: an amount withdrawn is added back as available contribution room on January 1 of the next calendar year, and the room calculation includes the previous year's withdrawals. [Verified live 2026-09-02.]
  11. CRATax rates on withdrawals (RRSP): the rate is set by the size of the withdrawal, at 10% on amounts up to $5,000, 20% above $5,000 to $15,000, and 30% over $15,000 for residents outside Quebec, with the page's own caveat that the amount withheld may not be enough to cover the tax owed. [Page modified 2026-01-29; verified live 2026-09-02.]
  12. CRAThe Lifelong Learning Plan: amounts withdrawn from an RRSP to finance training or education are not included in income and no tax is withheld, and they are repaid to the plan over a repayment period of generally 10 years. Anything not repaid when due is included in income for that year. [Verified live 2026-09-02.]
  13. Service CanadaRepayment of Old Age Security pension: for someone who lives in Canada, net income before adjustments at line 23400 above $93,454 for 2025 brings a repayment of 15% of the excess, entered on lines 23500 and 42200 and collected as a monthly recovery tax from July 2026 to June 2027. Accessed 2026-09-06.

Educational, not financial advice. Figures verified against primary sources on the date shown.

Your rate in retirement is the number you can see least of, and it's worked out in how to tell whether you have enough to retire. What a RRIF has to start paying you covers the far end, once the money is coming back out. Or browse the whole investing hub.

Related guide

How Investment Income Is Taxed in Canada