TFSA vs FHSA 2026: Which Should You Max First?
Both accounts offer tax-free growth, but one might be significantly better for your situation. Here's how to decide.
Quick Answer
Planning to buy your first home in 1-15 years? Max FHSA first - you get a tax deduction AND tax-free withdrawal. It's a double benefit the TFSA can't match.
Not buying a home / need flexibility? Stick with TFSA - no restrictions on what you use the money for.
When the FHSA launched in 2023, I immediately had questions. Is this better than my TFSA? Should I stop TFSA contributions and switch? The answer isn't one-size-fits-all, but after digging into the details, I think there's a clear winner for most first-time buyers.
Side-by-Side Comparison
| Feature | TFSA | FHSA |
|---|---|---|
| 2026 Annual Limit | $7,000 | $8,000 |
| Lifetime Limit | None (cumulative) | $40,000 |
| Tax Deduction | ||
| Tax-Free Growth | ||
| Tax-Free Withdrawal | Always | For home only |
| Withdrawal Flexibility | Any purpose | Home purchase |
| Re-contribution After Withdrawal | Yes (next year) | No |
| Carryforward | All unused room | $8,000 max |
The FHSA Advantage: Double Tax Benefit
This is the key difference that makes FHSA powerful. Let me show you with numbers:
$8,000 FHSA Contribution at 30% Tax Rate:
- Tax Deduction: $8,000 × 30% = $2,400 back on your tax return
- After 10 Years at 6% Growth: $8,000 → ~$14,327
- Withdrawal for Home: $14,327 tax-free
- Total Benefit: $2,400 (deduction) + $6,327 (growth) = $8,727
$8,000 TFSA Contribution (Same Scenario):
- Tax Deduction: $0
- After 10 Years at 6% Growth: $8,000 → ~$14,327
- Withdrawal: $14,327 tax-free
- Total Benefit: $6,327 (growth only)
That's an extra $2,400 from the same $8,000 contribution. Over 5 years of maxing FHSA, that's $12,000+ in tax deductions alone.
When TFSA Wins
The FHSA isn't always better. TFSA wins in these situations:
- You're not buying a home: FHSA money is locked for home purchase (or transfers to RRSP). If homeownership isn't in your plans, TFSA gives you full flexibility.
- You need emergency fund access: TFSA can be your emergency fund. FHSA can't - withdrawals for non-home purposes are taxed.
- You already maxed your FHSA: $40,000 lifetime limit means you'll hit the cap. Then it's TFSA time.
- You're in a low tax bracket: If you're earning under $50k, the tax deduction is worth less. TFSA flexibility might matter more.
My Recommended Order for First-Time Buyers
If you qualify for FHSA (18-71, first-time buyer, Canadian resident), here's what I'd do:
- Max FHSA first: $8,000/year until you hit the $40,000 lifetime limit
- Then max TFSA: $7,000/year for flexibility and additional tax-free growth
- Then RRSP: If you're in a high tax bracket and focused on retirement
Can afford both? Do both. But if you have to choose, the FHSA tax deduction makes it the winner for home buyers.
What If I Never Buy a Home?
The FHSA has a safety net: if you don't buy a home within 15 years of opening the account (or by age 71), you can transfer the entire balance to your RRSP - and it doesn't count against your RRSP room.
So worst case? Your FHSA becomes an extra RRSP with a tax deduction you already claimed. You're not losing anything - you just got a bonus RRSP contribution room.
Can You Have Both?
Absolutely. There's no rule preventing you from having both accounts. Many Canadians will max their FHSA, max their TFSA, and contribute to an RRSP - all in the same year.
If you can only afford to max one, prioritize FHSA (for home buyers) because you're leaving money on the table otherwise - specifically, the tax deduction you'd get.
The Bottom Line
- Buying a home in 1-15 years? Max FHSA first. The tax deduction + tax-free withdrawal is unbeatable.
- Need flexibility or not buying? Stick with TFSA. No restrictions, withdraw anytime.
- Can afford both? Do both. Max FHSA ($8k) + TFSA ($7k) = $15,000/year of tax-advantaged savings.
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Track Your Savings Goals
Whether you're saving for a home or building wealth, Waypoint Budget helps you track TFSA and FHSA contributions alongside your monthly budget.