RRSP vs TFSA: Which Canadian Account Should You Max First?
2024-05-01
Educational content only. Rules and tax laws change over time; verify official sources.
Canada's two main tax-advantaged accounts serve different purposes. Here's the optimal strategy based on your income and goals.
RRSP vs TFSA: Quick Comparison
| Feature | RRSP | TFSA |
|---|---|---|
| Tax on contribution | Tax deduction now | No deduction |
| Tax on growth | Tax-deferred | Tax-free |
| Tax on withdrawal | Taxed as income | Tax-free |
| 2024 limit | 18% of income (max $31,560) | $7,000 |
| Unused room | Carries forward | Carries forward |
When to Prioritize RRSP
- High income now: If you're in a high tax bracket (30%+), the RRSP deduction is valuable
- Employer match: ALWAYS take free money - contribute up to the match first
- Expect lower income in retirement: You'll pay less tax on withdrawals
- First-time home buyer: Home Buyers' Plan lets you withdraw $35k tax-free
When to Prioritize TFSA
- Low income now: If you're in a low bracket, save the RRSP deduction for higher-earning years
- Expect higher income in retirement: TFSA withdrawals won't push you into higher brackets
- Want flexibility: TFSA withdrawals don't affect government benefits (OAS, GIS)
- Emergency fund: Can withdraw anytime without penalty
The Optimal Order for Most Canadians
- RRSP up to employer match: Free money first
- Max TFSA ($7,000): Flexibility and tax-free growth
- Max RRSP: If in a high tax bracket
- Non-registered accounts: After tax-advantaged room is full
The Math Example
$10,000 invested at 7% for 30 years:
- TFSA: $76,123 (all tax-free)
- RRSP (25% bracket now and later): $57,092 after withdrawal tax
- RRSP (40% now, 25% later): $68,510 after withdrawal tax
TFSA wins unless you expect significantly lower taxes in retirement.
Plan Your Canadian Investment Strategy
Use our calculator to see how RRSP vs TFSA affects your retirement.
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