Should I max out my TFSA or RRSP first?

If you earn under $50,000/year, prioritize your TFSA first because your tax bracket is low and tax-free withdrawals are more valuable. If you earn $70,000+/year, prioritize your RRSP to get the larger tax deduction in your current high bracket, then withdraw in retirement at a lower rate. Between $50,000-$70,000, do both - split contributions 50/50 or slightly favor RRSP if your marginal rate is above 30%.

What is the main difference between RRSP and TFSA?

RRSPs give you a tax deduction when you contribute (reducing your taxable income now) but withdrawals in retirement are taxed as income. TFSAs use after-tax money (no deduction) but all withdrawals are completely tax-free forever. RRSPs work best for high earners who will be in a lower tax bracket in retirement. TFSAs work best for lower earners, short-term goals, or anyone who wants tax-free flexibility.

Can I have both a TFSA and an RRSP?

Yes, and most Canadians should have both. You can contribute to both accounts simultaneously as long as you stay within your individual contribution limits. A common strategy is to prioritize one account based on income, then contribute to the other with remaining funds. For example, if you earn $80,000, max your RRSP first ($14,400 at 18%), then put extra savings into your TFSA.

Which is better for retirement savings, RRSP or TFSA?

For most middle-to-high income earners ($60,000+), RRSPs are better for retirement because the tax deduction in your working years (when your rate is 30-40%) outweighs the tax on withdrawals in retirement (when your rate may be 20-25%). However, TFSAs are better if you expect your retirement income to be high (pensions, rental income) or if you want flexibility to withdraw before age 65 without penalties. Ideally, use both: RRSP for core retirement, TFSA as a flexible supplement.

Do RRSP contributions lower your taxes?

Yes, RRSP contributions directly reduce your taxable income. If you earn $70,000 and contribute $10,000 to your RRSP, your taxable income becomes $60,000. At a 30% marginal tax rate, you would get approximately $3,000 back as a tax refund. The higher your income and tax bracket, the more valuable the RRSP deduction. This is why high earners ($80,000+) benefit more from RRSPs than low earners.

Can I withdraw from my TFSA without penalty?

Yes, you can withdraw from your TFSA anytime for any reason without tax or penalty. The withdrawn amount is added back to your contribution room on January 1 of the following year. For example, if you withdraw $5,000 in July 2026, you can re-contribute that $5,000 starting January 1, 2027, plus your new annual limit ($7,000 in 2027). You cannot re-contribute the same amount in the same calendar year.

RRSP vs TFSA: Which Should You Choose in 2026? Complete Comparison

I spent two years paralyzed by this decision. Should I contribute to my RRSP? Or my TFSA? Every financial blog gave different advice. Some said TFSA for flexibility. Others said RRSP for tax savings. I ended up doing neither because I was too confused to pick.

Here's what I wish someone had told me: it depends on your income. That's it. Not your age, not your goals, not how "sophisticated" you are with money. Your current tax bracket tells you which account to prioritize. Let me show you how.

The Quick Answer (Based on Income)

Here's the decision flowchart most financial advisors use:

TFSA vs RRSP Decision Guide:

Income under $50,000/year:

Prioritize TFSA. Your tax bracket is low (20-25%), so the RRSP deduction doesn't save much. Tax-free withdrawals from TFSA are more valuable.

Income $50,000-$70,000/year:

Do both. Split contributions 50/50, or slightly favor RRSP if your marginal rate is above 30%.

Income $70,000+/year:

Prioritize RRSP. You're in the 30-40%+ tax bracket. The deduction saves significant money now, and you'll likely be in a lower bracket in retirement.

That's the 80/20 answer. For most Canadians, that's all you need to know. But let's dig into why this works.

How RRSPs Work

RRSP = Registered Retirement Savings Plan

Here's the deal with RRSPs:

Contributions are tax-deductible - They reduce your taxable income. If you contribute $10,000, your taxable income drops by $10,000.
Growth is tax-free - Investments inside your RRSP grow without tax.
Withdrawals are taxed as income - When you take money out (usually in retirement), you pay tax at your current rate.
Locked until retirement - Technically you can withdraw anytime, but you'll pay withholding tax (10-30%) plus income tax. Exceptions: First Home Savings Plan (HBP) and Lifelong Learning Plan (LLP).

Example:

You earn $80,000/year (30% marginal tax rate)
You contribute $10,000 to RRSP
Your taxable income drops to $70,000
Tax savings: $10,000 × 30% = $3,000 refund
In retirement, you withdraw $10,000 at 20% rate = $2,000 tax
Net benefit: $1,000 (saved $3,000 now, paid $2,000 later)

2026 RRSP Limits

Annual limit: 18% of previous year's income OR $33,810, whichever is less
Unused room carries forward indefinitely
Contribution deadline: March 3, 2027 (for 2026 tax year)

How TFSAs Work

TFSA = Tax-Free Savings Account

Here's how TFSAs are different:

Contributions are NOT tax-deductible - You contribute with after-tax money (no refund).
Growth is tax-free - Same as RRSP, investments grow without tax.
Withdrawals are 100% tax-free - Take money out anytime, any amount, zero tax.
Completely flexible - No penalties, no withholding tax, no restrictions. Withdrawn amounts return to your contribution room the next year.

Example:

You contribute $7,000 (after-tax money)
It grows to $15,000 over 10 years
You withdraw the full $15,000
Tax owed: $0
The $7,000 you withdrew can be re-contributed next year

2026 TFSA Limits

2026 annual limit: $7,000
Unused room carries forward (max $109,000 if 18+ since 2009)
No deadline - contribute anytime throughout the year

Side-by-Side Comparison

Feature	RRSP	TFSA
Tax deduction on contributions
Tax-free growth
Tax-free withdrawals
Withdraw anytime without penalty
Re-contribute withdrawn amounts
Best for high earners
Best for flexibility
2026 contribution limit	$33,810 or 18%	$7,000

When to Choose RRSP

RRSPs make the most sense when:

You earn $70,000+/year - The tax deduction at 30-40% bracket is significant
You expect lower income in retirement - You'll withdraw at a lower tax rate than you contributed
Your employer matches contributions - Free money always wins
You're saving specifically for retirement - The lock-in helps prevent early withdrawals
You want to reduce taxable income - Lower income can qualify you for CCB, GST credits, etc.

When to Choose TFSA

TFSAs make the most sense when:

You earn under $50,000/year - Low tax bracket means RRSP deduction is minimal (20-25%)
You're saving for short/medium-term goals - Down payment, wedding, car, emergency fund
You want complete flexibility - No penalties to access your money
You're early in your career - Expecting higher income (and tax bracket) later means saving RRSP room
You expect high retirement income - Pensions, rental income, or investments would push you into a high bracket

Real Scenarios (Which Should You Pick?)

Scenario 1: Sarah, 25, earning $45,000/year

Situation: Entry-level marketing job, saving for down payment in 5 years

Tax bracket: 20-25% (low)

Recommendation: TFSA

Why: Her tax bracket is low, so the RRSP deduction only saves $1,000-1,250 on a $5,000 contribution. She needs the money in 5 years (not retirement), so TFSA flexibility is crucial. As her income grows, she'll save RRSP room for when her bracket is higher (30%+).

Scenario 2: Marcus, 38, earning $95,000/year

Situation: Software engineer, wants to retire at 60

Tax bracket: 35-40% (high)

Recommendation: RRSP priority, then TFSA

Why: His 18% RRSP room is $17,100 (from his $95k income). At 35% marginal rate, that's a $5,985 tax refund. In retirement, he'll likely be in the 20-25% bracket, making the RRSP extremely efficient. Max RRSP first, then contribute excess to TFSA for flexibility.

Scenario 3: Elena, 32, earning $62,000/year

Situation: Teacher, can save $500/month

Tax bracket: 29% (moderate)

Recommendation: 60% RRSP / 40% TFSA

Why: At 29% marginal rate, RRSP is moderately efficient but not amazing. Split $500/month → $300 RRSP ($3,600/year saves $1,044 in tax) + $200 TFSA ($2,400/year for flexibility). Balances tax savings with accessible funds.

Calculate Your RRSP Tax Refund

See exactly how much you'll save with an RRSP contribution using our free calculator. Compare different contribution amounts.

Can I Do Both? (Yes, and You Should)

Once you have extra money beyond your priority account, absolutely contribute to both. Here's a common strategy:

Balanced Approach:

Max your employer RRSP match (if offered) - Free money first
Build $1,000 emergency fund in TFSA - Accessible cash for surprises
Prioritize RRSP or TFSA based on income (see guide above)
Contribute to the other account with remaining funds
Increase contributions as income grows

Common Mistakes to Avoid

1. Choosing RRSP Just Because "Retirement"

TFSAs work perfectly fine for retirement savings. If you're in a low tax bracket, TFSA can outperform RRSP long-term because withdrawals are tax-free.

2. Ignoring Your Tax Bracket

A $5,000 RRSP contribution saves you $1,000 at 20% tax vs $1,750 at 35% tax. Your bracket matters more than anything else.

3. Withdrawing from RRSP Early

You'll pay withholding tax (10-30%) PLUS income tax (20-40%+). You could lose 50% of your withdrawal to taxes. Use TFSA for money you might need.

4. Not Using Your TFSA Room

By 2026, someone who was 18 in 2009 has $109,000 in TFSA room. That's massive tax-free growth potential you're leaving on the table.

Track Your Contributions

Whether you choose RRSP, TFSA, or both, track your contributions throughout the year. Going over your limit costs you 1% per month penalty on the excess.

Check your contribution room on CRA My Account, or use a budgeting app like Waypoint Budget that tracks TFSA and RRSP contributions automatically.

Final Answer: Which Should You Choose?

If I had to give you one rule:

Under $50k → TFSA first

$50k-$70k → Split 50/50

Over $70k → RRSP first

Your tax bracket drives this decision. Once you understand that, the choice becomes obvious. Don't overthink it. Pick the account that matches your income, automate contributions, and let compound growth do the work.

Track Both TFSA and RRSP in One Place

Waypoint Budget helps you track contributions, monitor room, and hit your savings goals. Built specifically for Canadians.