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Choosing between the TFSA vs RRSP is easier than you think.

When it comes to saving, the TFSA vs RRSP debate is always at the forefront. Many people are confused as to whether to choose the Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or a combo of both to put money away for the future.

Regardless of whether you choose the RRSP or TFSA (or make use of both!), one of the best things you can do is invest consistently. This is why I recommend using a pre-authorized contribution plan to your discount brokerage account or setting up a pre-authorized “set it and forget it” investment solution with one of Canada’s robo advisors to pay yourself first.”

Over time, you can gradually increase your contributions until you max out both accounts.

Both the TFSA and RRSP are investment vehicles that shelter taxes on your investment returns, but depending on your circumstances, one might better for your money than the other.

The TFSA is more flexible and offers a better tax benefit than the RRSP but doesn’t have as high contribution room. The RRSP will probably let you set aside more but has stricter rules around when you can withdraw your money, and what for. Ultimately, everyone should aim to have both an RRSP and a TFSA and spread out the savings across both accounts.

Main Difference Between RRSP and TFSA

The main difference between the RRSP and TFSA is how your income is taxed when you contribute or withdraw from each account. The RRSP is a tax-deferred account, which means you contribute to it with pre-tax dollars and you’ll pay your income taxes on your withdrawals. In contrast, the TFSA is a tax-free account – meaning you contribute to it with after-tax income, so you’ll pay no more income taxes when you make a withdrawal. Because of this tax structure, you should come out with the same amount of money whether you choose the RRSP or TFSA, which is why you shouldn’t sweat your TFSA vs RRSP decision too much.

For example, here’s what happens when you compare putting your earned income in a TFSA vs RRSP:

Gross earned income$1,000$1,000
Income tax (30%)$300$0
Net contribution$700$1,000
Value after 30 years at 6%$4,020$5,743
Income tax at withdrawal (30%)$0$1,723

Keep in mind the above table makes a few assumptions, namely that if you claim your RRSP contribution at tax time to get a refund, you deposit that refund into your RRSP. If you make RRSP contributions and claim them when you file your tax income but don’t use the tax benefit to further top up your investment, the calculations won’t be the same. Likewise, the calculations assume you know what your marginal tax rate will be during retirement, which if you’re in your 20s or 30s, is difficult to predict!

TFSA vs RRSP Comparison

Despite their names, neither the RRSP or TFSA have to be a savings account. You can and should hold a variety of investments in your accounts such as GICs, mutual funds, stocks, bonds, and ETFs. Both of these accounts should be more appropriately named “Tax-Free Investment Account” and “Registered Retirement Investment Plan” because investing is really the best way to unlock the power for these accounts.

The real difference between the RRSP and TFSA comes down to their contribution limits and withdrawal restrictions, as well as how and when you pay taxes at these events. Our chart below summarizes some of the pros and cons of TFSAs and RRSPs.

Flexible?Can be withdrawn anytime and used for anythingCan't take out money penalty-free except for buying your first home or under the Lifelong Learning Plan
Investment options:You can choose your own investmentsYou can choose your own investments
Tax Rules:Tax-sheltered growth on investmentsTax-sheltered growth on investments
Direct Contributions?Can contribute directly (up to $75,500 total as of 2021)Can contribute directly (18% of previous year's earned income up to $27,830 for 2021)
Tax Deduction?No tax deduction for contributionsYou can claim a tax deduction in the year you make a contribution, or carry it forward to future years
Withdrawal Rules:Withdraw any amount at any time, without paying income tax Withdraw any amount at any time, subject to income tax
When you cash out, it's tax-free When you cash out, you have to pay income tax
Can only replace the amount of the withdrawal in the same year if you have available TFSA contribution room
Contribution Limits:Annual maximum: Varies year to year. Max of $6,000 for 2021.Annual maximum: 18% of previous year's earned income up to $27,830 (whichever is lower).
Lifetime maximum: As of 2021, $75,500 total for those who were 18 in 2009.
Expiration?No expiryRRSP must be converted to a Registered Retirement Income Fund (RRIF) by Dec 31 of the year you turn 71.

The TFSA Lowdown

The TFSA was introduced in 2009 to give Canadians a more flexible savings tool. Like the RRSP, the TFSA is best used for retirement savings. However, unlike the RRSP, the TFSA can also be used for anything else! Here are the top 5 points to remember about TFSAs:

  • It’s a very flexible, all-purpose savings tool that allows you to contribute and withdraw from a tax-sheltered account easily and without penalty.
  • You can open a TFSA as soon as you turn 18, and there’s no expiry.
  • You can make tax-free withdrawals from your TFSA anytime, for any purpose. You can only replace the amount of the withdrawal in the same year if you have available TFSA contribution room (unless you want to pay a penalty). The contribution room is returned the following calendar year.
  • When you retire and start pulling money out of your RRSP and TFSA accounts, the government takes your RRSP withdrawals into consideration when “clawing back” your Old Age Security (OAS). But this is not the case when withdrawing from TFSA — a big bonus.
  • Some employers only offer pension-match contributions for RRSP contributions. If this is the case, go with an RRSP vs. TFSA!

The Basic Lowdown on the RRSP

The RRSP was introduced in 1957 to help Canadians save for retirement. Here are the top 6 points to remember about RRSPs:

  • Since contributions are done with pre-tax income, you can claim a tax deduction in the year you make a contribution. If you don’t re-invest your tax refund, then you lose out on the pre-tax advantages.
  • Unlike a TFSA, you will have to pay tax when you make a withdrawal. RRSP must be converted to a Registered Retirement Income Fund (RRIF) by December 31 of the year you turn 71.
  • The maximum RRSP contribution is 18% of your gross income or $27,830, whichever is lower. Any unused contribution room can be carried forward to the next year.
  • There are two exceptions that allow you to withdraw from your RRSP for purposes other than retirement. However, you will need to repay the amount:
    • Home Buyers Plan (withdraw up to $35,000 for a down-payment on your first home, and repay over 15 years)
    • Lifelong Learning Plan ($10,000 per year to a maximum $20,000 for school, and repay over 10 years)
  • RRSPs are a great place to park US-based equities (read our in-depth explanation).
  • RRSPs are especially beneficial for Canadians in a high tax bracket. If you aren’t making much money in a given year (e.g. if you are a student), there isn’t too much point in chasing a big tax refund via an RRSP contribution. You already aren’t taxed very much (if at all), so you won’t get much of your taxes paid back. Go for a TFSA!

Comparison of the Best TFSA and RRSP Accounts 2021

Investing in your TFSA or RRSP is always a good idea. But if you need quick access to cash, a smart strategy is to keep some savings stashed in a TFSA or RRSP high interest savings account to complement your investments. One option is to open a Tax-Free Savings Account or RRSP savings account with a bank that offers a high-interest rate.

The bottom line: you should have both a TFSA and an RRSP. The TFSA makes sense for virtually everyone, but the RRSP becomes increasingly relevant if you’re at a high income or your TFSA is maxed out. Just make sure to shop around for the best TFSA rates before pulling the trigger.

How to Invest Your TFSA or RRSP

I can’t emphasize this enough: to really supercharge your RRSP or TFSA, make sure to open an investment account. Do not be fooled by the word “saving” in either name – these are investment accounts!

Thanks to the internet, it’s really easy to invest your TFSA or RRSP. To open a TFSA or RRSP investing account, you have several options:

  • Savvy investors who are comfortable with DIY trading can open a TFSA or RRSP investing account with an online discount brokerage to buy low-fee ETFs.
  • If you’re looking for low fees and a little guidance, open a TFSA or RRSP investing account with a robo advisor so you can choose a portfolio of ETFs that matches your risk profile.

The TFSA or RRSP is best used for investing rather than saving. If you use the TFSA or RRSP to invest in long-term equities, you can shelter a substantial amount of investment earnings. Would you rather shelter the 2% you are getting in a high-interest savings account or the 7%-8% a balanced index ETF portfolio could snag you?

Robo Advisors

If you’re looking for growth, low fees, and some investing guidance, Canada’s robo advisors are a great option for investing your TFSA or RRSP that follows the couch potato investment strategy. Here’s how it works: when signing up for a robo-advisor, you answer a series of questions and then the computer algorithm suggests a portfolio that matches your financial goals and risk tolerance. Then, just set up pre-authorized contributions and let the robo advisor do the work of monitoring and rebalancing your portfolio – at a much lower fee than what traditional financial advisors and mutual funds charge.

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There are a lot of options, but there’s one that really stands out above the others. With its low fees, easy-to-use platform, and excellent customer service, Wealthsimple Invest is our top choice for the best robo advisor in Canada. However, if you want to compare robo advisors in Canada head-to-head, check out our handy chart below and read our Complete Guide to the Best Robo Advisors in Canada.

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Online Brokerage

If you’re comfortable with DIY investing, you can create your own retirement investment plan or replicate some of the portfolios that robo advisors have. All you have to do is set up a TFSA or RRSP investing account with an online brokerage (which is super easy) and then make the trades on your own. Yes, it’s true that you must pay for some of your transactions, but overall, the management expense ratio would likely be lower than robo-advisors. Questrade is our top pick for the best online brokerage in Canada and you can read our full Questrade review to find out why.

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TFSA Savings Account

Lastly, if you’re looking to stash some cash for the short-term, consider opening a TFSA or RRSP savings account with a bank that offers a high-interest rate.

Final Thoughts

RRSP vs. TFSA? Ideally, you should spread out your savings and contribute to both. Whether you choose the RRSP or TFSA (or both), you’ll likely come out with the same amount of money because of the tax structure. The important thing is to start saving now and make regular contributions to a TFSA or RRSP. That way, you know you have all your bases covered when it’s time to retire.

Lastly, make sure to check out the best TFSA investments in Canada. Now go forth and prosper!

Editor’s note: This article was originally published in 2017 and has been updated to represent the current changes in 2021.

Disclaimer: Young & Thrifty has entered into a referral and advertising arrangement with Wealthsimple US, LTD and receives compensation when you open an account or for certain qualifying activity which may include clicking links. You will not be charged a fee for this referral and Wealthsimple and Young and Thrifty are not related entities. It is a requirement to disclose that we earn these fees and also provide you with the latest Wealthsimple ADV brochure so you can learn more about them before opening an account.

Article comments

chrissy says:

i have 40k to invest. i want to invest with the option of withdrawing in 2 years… where do you think i could be the biggest growth on my investment?

Qain says:

I like to get something back today so prefer RRSPs. I prefer this …
Contribute to RRSP (based on your limits etc); don’t spend the refund but rather invest in TFSA. This way, you have something going in both RRSP and TFSA.

Ash says:

Hi dear,
I read your article about what to choose between TFSA And RRSP account. I am not earning that much amount just 50K/year. I am 27 years old. Now i want to invest money in one of this account. So can you plz suggest me which one is better. I want to buy home as well in near future.
Plus where to open that account like through my regular bank RBC or the corporate finance group??
I will really appreciate your insight.
Thank you

Robb Engen says:

Hi Ash, it’s tough to make a specific recommendation without knowing more about your situation. I would say in general that a TFSA likely makes the most sense at this point given your salary level. You can open a TFSA account at any bank or at a robo advisor. If you open it at RBC the bank advisor will likely recommend investing in expensive mutual funds that they sell. So beware of that. You could also try a robo advisor like Wealthsimple, where the fees are much lower.

Tamara Martens says:

Hi, thank you for the great in depth article, it’s valuable for beginner investors such as myself:).

I am looking for some advice regarding using an RRSP to hold US based securities, if the goal to retire in 20 years falls before the retirement age of an RRSP, would it be better to hold US based securities in my TFSA and incur the tax penalties (I.e US withholding tax on dividends) in order to have access to the investment returns at the age of 60 rather than 71?

I understand is wiser to use an RRSP over a TFSA for Us investments to save on tax penalties but not getting to use the benefits of those investments after 20 years because of the retirement age restriction is cause for concern. What would you recommend?

Thank you,

Robb Engen says:

Hi Tamara, first of all most investors should just hold Canadian listed ETFs across all of their accounts. U.S. listed ETFs can make sense inside an RRSP to reduce foreign withholding taxes and lower the overall costs. But this only makes sense when your RRSP balance is large, say $250,000 or more. Even still, you need to buy U.S. listed ETFs with USD, meaning you need an RRSP account that can hold USD and find a way to fund that account with USD.

Second, there’s no retirement age restrictions in an RRSP. You can withdraw money at any time. That money will be subject to taxes and addd to your income for the year. You need to convert your RRSP to a RRIF at age 71 and then begin annual mandatory minimum withdrawals afterwards.

LIRAs, or locked-in retirement accounts, are subject to age restrictions (typically 55), but again that shouldn’t prevent you from using U.S. listed securities if it makes sense in that account.

Finally, you shouldn’t hold U.S. listed securities inside your TFSA. This account is not recognized by the U.S. as a retirement account and so it doesn’t have the same preferential tax treatment when it comes to foreign withholding taxes.

rabbit says:

Hi there,
I have read about TFSA and RRSP but still not sure which one is better or suit me in term of using for investing in equities!!
As I understand, if I invest $10,000 in TFSA and it grown up to $15,000 then if I withdraw $15,000 this year so I will get contribution room in TFSA for next year with an extra of $5,000, am I understand it right?
With RRSP, if I invest $10,000 and it grown up to $15,000 ,and I have to withdraw $15,000 before I turn 71 (not in case of house buying or study) ,how much tax I have to pay for withdraw this $15,000? Do I need to pay tax on both $10,000 and $5,000 ? As my knowledge $5,000 from investment profit should be tax free, right ?

Robb Engen says:

Hi rabbit,

The choice comes down to your tax bracket. What is your marginal tax rate today, and what do you expect it to be in retirement?

If it’s higher today than you expect it to be in retirement then you should contribute to your RRSP. If it’s lower today than you expect it to be in retirement then you should choose your TFSA. If you think it will be the same then there is no difference between the two accounts.

An RRSP contribution gives you an immediate tax deduction, but you pay taxes upon withdrawal (you do not need to take it out before you turn 71 – you simply convert it to a RRIF and then begin a series of minimum mandatory withdrawals over time.

A TFSA contribution gives you no immediate tax deduction upfront, but you pay no taxes on your original amount or your gains upon withdrawal.

Check your marginal tax rate on this calculator: https://www.eytaxcalculators.com/en/2020-personal-tax-calculator.html

And to answer your TFSA withdrawal question, if you contributed $10,000 and it grew to $15,000 and you withdrew the entire amount, next calendar year you would get the $15,000 in contribution room back, PLUS next year’s annual contribution limit.

Wazime says:

Hi. I’ve read the article and I am trying to to decide what’s best for me. I’m 40+ years old and make about $100,000/yr. I have no TFSA or RRSP. Just currently my wife went back to work and I can no longer claim her as a dependant so have lost that deduction. Last year was the first time i had to pay at tax time. I have my employer taking off additional tax so that I get a refund, but just recently thought that an RRSP would be the better option for me. Just wondering if I am correct or if the TFSA is a better option for me.

Oh yeah and I have been paying into a pension for the last 10 years.

Robb Engen says:

Hi Wazime, depending on your home province, your marginal tax rate could be as high as 43.41% (Ontario). That means a $1,000 RRSO contribution could give you a $434.10 tax refund. It would make all kinds of sense for you to choose the RRSP over the TFSA, even with you contributing to a pension (provided you have available RRSP contribution room).

Kate says:

Hello! I read in one of the earlier comments that having a TFSA is a nightmare for a Canadian/American. Do you know why is this? Should I be concentrating on investing in a RRSP then, even with a low income? TFSA ‘feels’ better to me based on my circumstances and everything else I’ve read, but I never considered my dual citizenship having an impact on anything. (I’ve only filed taxes in Canada to date, but I’ll be sorting that out this next year and will be filing in both countries)

Lisa Jackson says:

Hi Kate,

Great question! For Canadians, the TFSA is a tax-sheltered savings vehicle that can be used for any purpose and cashed out at any time without penalty. You can open a TFSA savings account, but to get the full power of the TFSA, it’s best used as an investing account.

However, it’s complicated for dual citizens. The short story: Canada and the U.S. have a tax treaty that harmonizes the way pensions and retirement accounts are taxed. But this does not cover TFSAs. So that means if you’re a U.S. person, your gains earned within a TFSA investing account are taxable in the U.S. So that’s why many experts discourage dual citizens from opening a TFSA and direct them towards an RRSP.

Your best bet is to work with a tax accountant and/or financial advisor who specializes in US/Canadian taxes. Good luck!

Dave Little says:

The USA will tax your TFSA and any non-USA mutual fund accounts (even inside an RRSP perhaps?) so heavily that, by the time you add in the thousands you will pay for a good USA specialist accountant, all savings/growth will be wiped out. Short answer: get rid of your USA citizenship while it still only costs $2350 USD plus your personal expenses (accountant, gas money, etc.). Once that is over with then you can invest however you want without looking over your shoulder. Lots of stuff on this on the internet (Isaac Brock Society, etc.).

Mike says:

I would like to seek your input for the better option for my situation based on the information below.

I have no savings either in RRSP or TFSA at the age of 43, but I am planning to start saving up soon using either RRSP or TFSA. I am currently employed permanently with the federal government with a current annual income of $100K. Even if I don’t get another promotion, I am estimating that I will earn at least $85K annually in pension when I retire in 20 years (32 years in service in total). Even though RRSP will currently save me significant money in taxes, I am concerned about funds from RRSP being counted as income and possible putting me a different tax bracket; however, I expect I will be in a different tax bracket at that time. I am also concerned about paying taxes on the income earned on the investment not just the contribution amount. These concerns against RRSP are making me lean towards TFSA.

My wife who is 44 years old is a permeant teacher in Ontario, but she changed careers 4 years and have moderate saving for retirement but no work pension prior to that. She is currently making $70K annually, but I am not sure yet how much she will be making when she retires in about 20 years, or how much income she will receive with 24 years of service from her pension (some say compared to others it is a good pension). Considering that she currently makes less money than I do and will be working fewer years to count towards her pension, I could contribute to her spousal RRSP to reduce my taxes and contribute that saving in taxes to her RRSP as well.

Thanks and wishing you success financially and in health for your retirement.

Robb Engen says:

Hi Mike, for all the reasons you list it makes sense to contribute and max out your TFSAs versus your RRSPs. True, you won’t enjoy the tax savings that come with an RRSP contribution today, but you’ll minimize or avoid any potential tax issues in retirement (especially with two generous defined benefit pensions).

BTW, a spousal RRSP is almost redundant now because you’re allowed to split pension income in retirement and even out your household income to save on taxes.

Kari says:

I think one of the keys in deciding RRSP vs TFSA is what income tax bracket you’re in. For our family in our prime earning years, we will definitely be in a lower tax bracket in retirement, so RRSP makes sense for us. For my 19-year-old daughter, she is in school and earning part-time income. She doesn’t pay income taxes anyways, so there is no benefit at all to RRSP for her – she maxes her TFSA.

For younger people like her, perhaps it will be better to never use an RRSP. If you only ever save for retirement in your TFSA, your income will be zero (from that source) and you may be eligible for additional federal benefits for low-income seniors. Or if they find themselves in a very high tax bracket, they could make a massive transfer of funds to an RRSP to lower their tax rate that year.

Josie Livingstone says:

Thanks for this advise! I decided then to go for TFSA with our additional investments! I like the benefits it give such as less paper work, and easy rules.

Bodhinjoy Barua says:

I certainly determine that, TFSA is better than RRSP, if you are in less income. But on higher income, both are good for your future. On RRSP, what you are getting back now from ravenue canada, you have to pay back as tax at time of withdrwal at your retirement. Moreover, the amount withdrawl is not enough for daily living. The more you withdraw, the more you pay tax. On the other hand, TFSA is all yours without any cents tax. But again, if you have higher income, you should invest at both. On your retirement, if you have enough income for daily living ( like other income), you better deposit the amount to TFSA, which you withdraw from RRSP. So maximise the TFSA first, then go for RRSP. both are excellent investment for retirement. Thanks to our Government.

Wayne Lam says:

Without a doubt it’s gotta be a TFSA. A TFSA account is quite literally tax-free, but RRSP is basically deferred taxes. You’ll still have to pay taxes when you withdraw it from your RRSP account. Plus TFSA has much more flexibility!

MelissaKay says:

Thank you so much. Finally put my mind to rest over which one is best for me. I suspected TFSA but wasn’t sure. I have a good defined benefit pension and have CPP contributions since age 18. I also don’t usually re invest my RRSP refund (putting it into my emergency fund instead). This article made me realize I want to put my extra investments into a TFSA first. I’m trying to avoid OAS clawback. Thanks again for the information that finally helped me after so much searching online.

Melissa says:

Thank you so much. Finally put my mind to rest over which one is best for me. I suspected TFSA but wasn’t sure. I have a good defined benefit pension and have CPP contributions since age 18. I also don’t usually re invest my RRSP refund (putting it into my emergency fund instead). This article made me realize I want to put my extra investments into a TFSA first. I’m trying to avoid OAS clawback. Thanks again for the information that finally helped me after so much searching online.

Maddie says:

Hi, I have a question about RRSP Contribution Room. My employer matches my RRSP contributions (to a maximum amount of course), does the “total” invested count against my 18% RRSP Contribution Room or only the “half” that I have invested?

Emma S says:

Recently started investing in TFSA after spending years contributing to an RRSP and I wish I had started sooner. The benefit of having the TFSA as an investment vehicle is fast closing the gap (for me) between dreaming and reality.

Chaudhry says:

TFSA withdrawal is considered income if you are applying for OSAP for your kid. Very strange for me to learn this. This impacts what you or your kid can gets in loan or in grants from OSAP. I am sure not many people know this.

Further, If you lose money in an investment in TFSA, loss can not be claimed.

Elena says:

Hi Kyle, my son just finished university and his annual income is 12k, he wants to start contributing to either TFSA or RRSP. He want to put 500.00$, at the stage that his is now, what would be a wise choice for him as he is slowly starting in the next stage of his life.

Kyle says:

Almost certainly (without knowing any other variables) a TFSA would be the way to go with that income level Elena.

Cory says:

Hi! I am fairly new in investing and can’t decide to invest in my TFSA or RRSP. My employer has an employee savings plan where they match 5% contributions. However, they have a rule where if I withdraw from this plan, the company will stop contributing for 2 years. So my money is pretty much locked in unless I leave the company (which is a possibility in the next 2-3 years). My salary is $58K. I only have $15K in my TFSA and $2k in my RRSP. Should I do the matching for my RRSP or max out TFSA first and then contribute to my RRSP? I also have the option to split the 5% match.. I could do 3% match to TFSA and then 2% to RRSP or vice versa. Any advice / guidance is much appreciated! Thanks!

Kyle says:

Hi Cory – ALWAYS take the automatic pension match. It’s free money. I wouldn’t worry much about withdrawing. Without knowing all of the other variables in your financial plan I can’t really make a recommendation TFSA vs RRSP and your income level is right in that “grey zone” as far as tax benefits either way. I’d focus on maxing out that company match, and the truth is it probably doesn’t matter a TON which you choose as long as you get your asset allocation right in regards to your goals and risk tolerance.

Jannie says:

Hi there. My employer has just announced that their employees will have a choice between RRSP or TFSA contributions (matching). I currently have about $35,000 in RRSPs and very little in TFSA. My current income is approx. $100,000/annually, I have approx. $100,00 debt in mortgage and line of credit. (Unfortunately I had to claim bankruptcy about 10 years ago so I’m kinda starting over at the age of 50+.) I read your article and appreciated the clarity it offered, but I am still undecided as to the best way to go. I am leaning toward the TFSA so I can use it short term to pay down the debt and then start contributing to RRSP again (as I am currently). Any comments you might offered would be appreciated. Thanks!

Kyle says:

Depends on a lot of variables here Jannie. Chief among them is the interest rate on that debt. With this limited info, if it were me, at that high a marginal tax rate, I’d go with the RRSP (max that out to get the company match) and then use the tax refund to pay down your debt!

Mrs. MB says:

Hello! I’m planning to max out my TFSA’s first. I do have some already but they’re sadly just sitting in cash/ savings. I should move those soon (but I hate dealing with the banks!) … If I move / put in more $ into new TFSA’s and want them in ETF’s, what’s the difference between using a RoboAdvisor (WealthSimple) vs. Brokerage (Questrade)?

Kyle says:

Hello Mrs. MB. Please check out this robo advisor article and then let me know if you have any questions as I go through this pretty in-depth there.

Judy says:

Thank you for the fast reply. Just to be clear my work doesn’t match anything I put into an rrsp. All they do is pay the admin fee’s for the rrsp account and thats all. We get profit sharing once a year from work which we have the option to throw into our rrsp or put on our regular pay and get taxed on.

Judy says:

Very good article- However I still need some advice. I make about 41,675 give or take ( depending on what profit sharing is where I work) I have a tfsa however do not have a rrsp. I have plenty of room still in my tfsa so i am wondering if i should just max that out and focus on paying the mortgage off.. OR if i should be putting some money in an rrsp to reduce my taxes as well? Personally I think max my tfsa and pay off the mortgage then worry about rrsp but i need some guidance. However in a way i think i should open up an rrsp ( because at work we have the option to throw our profit sharing money into our rrps accounts if we want- instead of putting it on our pay and being taxed on it) Just need any opinions/advice I can get. Maybe I should open an rrsp and thrown in my profit sharing I get once a year in there and not put any other money in there until tfsa is maxed out?

Thanks in advance

Kyle says:

Hi Judy. Here’s the thought process I’d use in a similar situation:

1) The RRSP-match is FREE MONEY. Take that and run. That should be your first priority. Perhaps you can even get back years. Again, it’s worth looking into since you’re getting an automatic 100% return on your investment in one day!!

2) After you get the company match, I’d probably lean towards maxing out the TFSA before I worried about anything else in the RRSP since your income isn’t putting you in a super high tax bracket.

3) IF you max out the TFSA and the employer match, then I’d start thinking about paying down the mortgage (if it were me). But then we get into a lot more variables about how big a mortgage it is, do you have roommates or a partner to split the payment with etc.

Susan says:

Great simple comparison. More knowledge in that one article than most people get in years. I didn’t read all the comments so not sure if these Cons of the RRSP were mentioned.
1. You alluded to this when discussing the pros of the TFSA but with RRSPs if you withdraw money you don’t get that contribution room back.
2. When you die without a spouse (or disabled dependent) your RRSP is collapsed and the entire balance is taken into income. That’s a problem if you are 50 and did all your savings in an RRSP. WhicH leads to 2b. You can designate a beneficiary for your RRSP that is not the same as the beneficiary of your estate. Problem is the beneficiary gets all the money (no withholding on payout) and the estate gets the tax bill.

An advantage of the RRSP is using it as a “I make less money now than I did then”. This is great if you are a high income earner planning to have kids and are self employed or work somewhere there is no maternity or parental leave top up. Load that baby (pun intended) and then withdraw while on maternity/parental leave. Or if you are planning on taking a work break and going to school. Or if you are self employed and can “smooth” your income.

But the main point is people need to make an effort to learn and understand. The days of whining that “taxes are hard” are over.

Jason says:

Hi Kyle. You asked in a follow up to one of my comments “I’d be interested to see what your returns on several decades from now.” because I said I always well outdid the market as a whole. I’ll give you an update after just a few months since I was the guy who was getting into the weed stocks. So far I’ve more than tripled my money, and that’s before big tobacco gets on board, while the US feds are still against it, it’s not yet legalized in Canada and in the US the banks can’t touch it so it’s an all-cash business still, plus it’s probably going to come to the attention of big pharma as a replacement for opioid pain relief. Basically, what I do is try to get in not on the ground floor, but on the second level of multi year trends. At the turn of the millennium it was uranium and gold/silver stocks, then I cashed out and did nothing for years and now it’s weed and mining stocks that deal with the rare elements that go into batteries, especially for the new automated electric vehicles. A bit of crypo stuff too. If/when those die, I’ll move on to the next thing. I’m not nearly smart enough to actively trade, so I go for the long term stuff. Look at a max chart of Amazon. Remember that horrible crash after the tech bubble? That rise/fall literally barely registers on the maxed out chart. If those people would’ve just kept it they’d have an insane return now. It’s all a matter of perspective.

Kyle says:

Appreciate the update Jason – that’s an impressive record for sure. I still think when I look at the long-term data your track record is very difficult for most people to replicate. For example, it’s not a given that tobacco companies getting into the weed market will buoy current weed companies – they could simply decide to bigfoot those companies right out of business. They may also decide to pay a premium to acquire them – who knows. I honestly believe the current crypto currencies will go to nothing. It’s possible big banks might co-opt blockchain tech, but there is no way they’ll ever allow Bitcoin to function in the mainstream (as South Korea just showed us). Congrats on a great run – I just can’t in good conscience recommend most people follow your lead.

Kaylee Stock says:

I am wondering if this makes any sense, and looking for advice. My income last year was $100 000, so I am in a high tax bracket. I have $36000 in RRSP contribution room, and $42000 in my TFSA. I was considering maxing out my RRSP contributions using some of the TFSA money. With an estimated income tax return of $9000 which I would reinvest in my TFSA. Would that make any sense?

Kyle says:

That makes total sense to me Kaylee – assuming that you believe you’ll be in lower tax bracket come retirement and that you’ll take pains to understand how TFSA over contributions work.

Maria says:

Thanks so much for all you’re helpful posts on this site! I’m terms of what I think is better TFSA VS RRSP, I ran the math on it and no matter how much an individual earns, the total “cost” is lower if money is put in a TFSA account given the individual is using the TFSA as a long-term investment/retirement (ie. don’t take money out for 20+ years). Even if I’m in the highest tax bracket now, it makes sense to pay the tax I owe today in order to pay less total tax when I retire. It’s a short term sacrifice for long term reward.

Kyle says:

I don’t think that’s correct Maria. Is it possible that you are not factoring in the tax return that you’d get from making the RRSP contribution? IF (a big “if”) you reinvest that amount, and you retire in a lower tax bracket than were in when you contributed, you are going to come out ahead in plenty of scenarios. Not that there is anything at all wrong with prioritising a TFSA!

ZHao says:

I just finished paying off my school debt working multiple jobs and I am proud to say that I can finally save. It also helps that I just received a nice cash gift from family to help kick start my new beginnings. My short term/long term goal is to continue building equity for a ~100K down payment in 2-3 years.

I have 50K cash sitting around in my checking account at the moment with an estimated 25K/year in savings for the next 2 years.

But I have:
$0 contributed to TFSA
$0 contributed to RRSP

What would you do in my situation??? Would you throw 25K into the RRSP – just enough to cover the Home Buyer’s Plan – and to also receive the nice tax deduction for next year? And then throw the remaining 25K into a TFSA High Interest Saving Account (2.0% at EQ Bank), plus any additional savings I accrue for the next few years until I am ready to withdraw and pay the down payment??

Please advise.

Kyle says:

That’s not a bad plan at all ZHao – and congrats on amassing a solid little downpayment already! The only potential flaw in the plan is if you aren’t earning enough to really take advantage of the RRSP. But assuming you’re making more than 40-50K or so, then using an RRSP would be a good idea. You might want to spread your RRSP contribution out over a few years in order to maximize your refund over that time (and to make sure you have the contribution room).

Jason says:

That’s the hope (which is also funny because I think cigarettes are absolutely disgusting in every way. I guess it’s my way to make money off of both). I wish I could profit off of everything I can’t stand, haha.

Jason says:

If the Feds do that, hopefully it will only be in one country. I also pay extra to get interim warning bulletins (plus my parents are new junkies so I’d know within minutes, haha). That would let me get out before being absolutely pummelled. Plus, I’ll always have active stop-loss orders on anything risky. My hope though is for one of the few players in the game right now to be bought out by the big boys so they can expand like crazy. Like I said, I hate weed with a passion. Making money off if it is my revenge, haha. Thanks for the words of encouragement, because I’m a bit nervous after being out of it for so long. *crosses fingers*

Kyle says:

I keep thinking that eventually the cigarette companies will just buy out and dominate the market – they already have all of the logistics, distribution, and infrastructure in place right?

Jason says:

Kyle, as far as who do I listen to? I am just taking baby steps right now getting back into this, but I listen to everybody I can, and then trade as emotionally neutral as I can. I’ll literally get up and leave the computer for the day if my heart rate goes up because I “have” to buy or sell and I get panicky. I get as many contradictory opinions as I can, then sort out for myself who seems like they make sense. Even after that, I still want to hear a variety of opinions. The thing I will listen to the least would be some talking head on tv. I don’t care what someone says is “hot right now” on a 24hr news channel. I want someone who follows a particular market closely and has been for decades, and they have the track record to back up their claims (Jim Sinclair and Jim Dines were two names I’ll point out from my precious metals days). I’m also not interested in people who made a wild prediction that came true. Statistically speaking, those people are wrong far more often than right but we tend to ignore their 19 misses and concentrate on their 1 big win. I also don’t follow technical day traders. That’s not in my wheelhouse. I’m more of a medium/long term holder when a new bull market starts (which is why I’m so interested in marijuana right now). The reason I got out of the market is because I don’t do anything on margin (and I’m not filthy rich) so I don’t have the leverage to see monster gains. For example, 25% on $200,000 sounds great, but it is still only $50K. That’s like making under $25/hr, and that’s if you pull all of your gains out every year. This time it’s going to be in addition to my day job so I can actually keep growing.

Kyle says:

That’s about the most rational stock-picking answer I’ve ever heard Jason! Good luck going forward – I just know it isn’t for me. I’m quite interested to see if you can continue to outperform the market like that. BTW, anecdotally, I agree with your assessment of the marijuana industry, I just think there are so many variables when it comes to picking the best way to play it. What if the Fed Gov decides that they will grow and distribute all legal product for example?

Jason says:

Thanks for getting back to me. As for the 10-20%, I was blowing that away when I used to do stocks (the last year I did it I was at 56%). I was into precious metals and uranium at the beginning of the booms, as well as other commodities. Now I would go into marijuana stocks and a few others (which is funny because I hate marijuana with a passion, but it’s definitely a growth market). I paid boatloads for really good market advice (from The Dines Letter and a couple others) and it paid off. I took my profits and went into bricks and mortar (big mistake, haha) for over a decade. Now I’m looking to get back into stocks (and the expensive advice). I appreciate the OAS and CPP comment. I’m going to see an accountant soon so I’ll bring that up specifically.
As for a Wall St fund, I doubt the stuff I’m into would scale. Warren Buffet has said many times he could get huge gains, but not when dealing with hundreds of millions. The market shrinks the larger you get. I’m just small potatoes, but that’s where the biggest gains are (which is why I pay through the nose for real-time notifications because small stocks can turn south on a dime). I’m not nearly smart enough, nor have the time to do the in depth investigating on each company which is why I pay four figures yearly for advice.

Kyle says:

Very interesting Jason. I’d be interested to see what your returns on several decades from now. If you don’t mind me asking, how do you decide who has good advice and who has bad?

Jason says:

The vast, vast majority of the talk of the TFSA vs RRSP seems to revolve on the tax bracket now vs later thing. So many people are only looking at it through that one lens. Am I missing something? If you are going to put your money in a self directed account, wouldn’t you be far better off to take advantage of being able to put more dollars into your investments up front? (so long as you didn’t jump into a crazy high income tax bracket later, but even if you did, couldn’t you just take the $ out of your RRSP, pay the taxes at your pre-big-raise tax rate and then transfer it into a TFSA?). I don’t get how getting a 10-20% return on $10,000/yr vs $6,500/yr wouldn’t more than make up for the taxes you have to pay for later. Or is it that 95% of the people here are using it mostly for index funds or just straight savings?

Kyle says:

So a few questions about your comments Jason. First off, love to know how you plan on getting a 10-20% return. If you’re doing that consistently you should go to Wall Street and start your own fund! Also, are you aware of how RRSP vs TFSA affects OAS and CPP? To answer your question, no you can’t take the $ out of your RRSP and pay it at your big-raise rate – it would get taxed in the calendar year you took it out. Go ahead and play with some comparison calculators to see what would work best for you. Finally, some people want to save RRSP contribution room for when they earn more.

Cecile says:

Kyle, thanks for your reply but my question is whether to transfer in kind from my TFSA or the Non-Registered funds to RRSP.
Both make sense but the Non Reg has capital gains, but the TFSA is moving money from a tax free to a deferred environment. I have just retired but have income in the last year which I intend to reduce with this transfer to RRSP. With the low income in my retirement, I might not be taxable when I am forced to withdraw at the mandatory age.

Kyle says:

I would think if you have a large amount of taxable income last year Cecile, then it would make the most sense to transfer the non-registered funds. Again, there are other variables that might make a difference, but on a balance of probabilities, that would be the way to go. Sometimes people use non-registered accounts to do things like claim losses, or if there is Canadian dividend income and they are in a low tax bracket. Given what you’ve told me though, I think this would be your best bet. If we’re talking more than a couple thousand bucks I’d contact a decent accountant who is familiar with your entire situation.

Cecile says:

I have maxed out my TFSA and have investments in a Non Registered A/c. With the RRSP contribution deadline coming up, I would like to transfer in kind from either my TFSA or Non Registered investments to RRSP in order to reduce my Net Income. Which is a better choice, from TFSA or Non Registered? What are the Pros and Cons?

Kyle says:

Hi Cecile, without knowing all of your particulars, my instinct would be to go the RRSP route – shelter your compounding investment returns as much as possible! The only time that wouldn’t be a good idea is if you think you’ll have very little taxable income in retirement or if you think you will be earning more taxable income in retirement than you are now.

Manny says:

Thanks Kyle for your immediate response! I was also thinking more like what you said, 30-30-30-10 like from the couchpotato model portfolio aggressive stance. Like 30% cad market, 30% international market, 30% us equities and 10% in the bond market. I see that they have risen quite high over the past few years so I am not sure if this is the best time to put money in or wait for a drop perhaps in the near future. I know you might say just invest it in because we can never time the market! but I would be interested to hear your opinions. Plus I guess with the dividends, I could do a reinvestment plan to buy more of it every year.

Kyle says:

That sounds like a solid plan Manny. I have no idea where the market is headed and if I did – I’d be managing a hedge fund and not a blog! Anyone that tells you they know is likely delusional Manny. I do know that over the last 100+ years the stock market has averaged a return of 10% or so. The worst 30-year rolling average is around 6%. I just take comfort in those numbers!

Manny says:

Hi I was thinking of investing like $25k-30k for my upcoming RRSP into the TD e series funds like the Canadian Bond Index, Canadian Index, International Index and US Index. What would be a good percentage to contribute for each if I have higher risk tolerance and am 31 years old with lots of contribution as well on my TFSA as well. I am having hard time to distribute to see which one should I go with. I dont think doing 25% for each split would be the best option.

Kyle says:

Hello Manny. The percentage in each really depends on so many more variables. You could do worse than a 25% x 4 solution! If it were me (not saying your variables are like mine) I would tamper down the bond percentage and split it between the Canadian and American markets, but that’s just me.

Braden says:

The only thing I can’t seem to get is the benefit to investing your tax refund into a RRSP

That money was taxed from you and now the government is giving it back to you. What makes it “better” to invest that money instead of money you received after tax (on your pay cheque).

Both we taxed, in fact the money you got back for your refund was tax itself.

I don’t get why there is an added benefit for using an RRSP to invest this money over a TFSA.

Someone please explain this to me!

Kyle says:

It’s simply a matter of your tax bracket Braden. Like the advantage of the RRSP is that it is “pre-tax income” going in right? It’s only truly pre-tax if you invest the money you get back (that should have been yours all along) otherwise your spending your tax deferment. That being said, you could invest the refund in your TFSA and that will still serve you extremely well – so whatever motivates you!

Kira says:

Hi Kyle,

Yes I have read the robo advisor article, very informative! I was wondering if you could recommend a robo advisor online for investing like a sum of $30,000. I got $50,000 in my TFSA which I could also transfer over to make it $80,000. Or do you think I should invest in some TD e-series funds on the TFSA while I put like $30k on a robo advisor in a bunch of ETFs to see the performance. Does robo advisors like Weathsimple provide me to contribute on a RRSP? I was thinking of contributing to my RRSP before Feb 28th to bring down my tax bracket.

Kyle says:

Several questions there Kira:

1) If you’re waiting to “see the performance” you need to read more of our stuff on index/couch potato investing. The performance over a short term is almost completely inconsequential.

2) You can move your TFSA and/or RRSP over to any of the major robos.

3) It really comes down to if you want to be responsible for re-balancing your TD e-series funds on your own, or what a robo advisor to help with that. Given the questions that you’re asking, I think you might benefit from the “light advice” component that the robos offer.

Dominic says:

I want to start investing in the stock market by myself. Is it better to use a RRSP or TFSA account for that kind of investment? If I have capital gains from selling does the money I keep in the account taxable as income?

Kyle says:

Hi Dominic, the capital gains will not count as taxable income in a TFSA. Any gains in an RRSP will compound tax-free, but are taxable upon withdrawal. Sign up for our free ebook for more details.

Kira says:

Great insight and thorough post on the differences between both investment vehicles! I am 31 this year and just maxed out my TFSA but have not invested anything fully in it yet due to market uncertainties. I have like 50% cad and 50% usd parked in there for flexibility in investing CAD or USA markets. I am still not sure what to invest or to max out my money. If your money is parked there without any buying of investments, do you get a 2% high interest from the bank? I am thinking of putting in like 25K into my RRSP (which I have not put any yet) for investments and possibly to contribute towards a downpayment to a home in a couple years and also to reduce my tax bracket as I am in a high tax bracket as of this year. I do contract jobs so not much of pension to look for when I retire. What do you suggest I should do or what I am doing is right?

Kyle says:

Have you checked out our robo advisor article? I think it might be a great fit for someone like yourself. Check it out and let me know if you still have these questions.

Ed says:

I’m new to investing and just trying to learn so that I can get started. I’m in my 20s I won’t be retiring for a while, but I’m just wondering- because I want to start investing my money. So my question is, in my situation, should I start with a TFSA or RRSP? I work for the federal public service and the pension is pretty good (defined benefit plan). I’ve never invested a cent before, financial advisors have always scared me off (hence why I’m lurking here on your website). So given that I have a good pension when I retire, are you saying I should focus on TFSA instead? Thank you kindly.

Kyle says:

You can’t go wrong getting your feet wet with a TFSA in your situation Ed. You can always use your RRSP room as you get further into your career and presumably make more money.

TomT says:

Thanks Kyle. I would have loved to have seen this article years earler. It likely would haveat, the very least, triggered me to have a closer look at my savings to see if I was getting the best bang out of my buck. I have already given the link to a few co-workers, as I know they are similarly putting to many eggs in the same basket.

That all said the RRSPs really helped motivate me to save, and in my opinion helped me build good savings habits. If my biggest complaint is about which savings plan works best for me, I know I’m better off than many.

Kyle says:

Thanks for sharing the link Tom – it means a lot to me when readers engage like that! Seems like you have a pretty solid financial foundation and will transition smoothly into the next phase of your life.

TomT says:

Thanks for the quick and easy read. Like many I originally started saving money for retirement by putting money into an RRSP to help with retirement. The tax refund really made it feel like I was winning twice. About ten years ago though I started working for an employer with an amazing pension plan. Out of I just kept contributing to my RRSP as well.

This year I sat down and did the math, and was disappointed to see that the tax advantages of the RRSP is really no longer there for me. In fact I likely should have stopped paying into them five years ago. My advise to anyone with a work place pension and RRSP’s is to sit down with someone as soon as possible to see if that advantage still exists.

For me TFSAs are the only real option now, and I am even considering taking a hit transferring some of my RRSPs to my TFSA as I don’t know that my tax bracket will actually be any lower in my retirement than it is currently. Add to that I suspect our taxes may actually go up as a result of of irresponsible baby-boomers, I think that TFSAs may actually pay a much larger end benefit. I know I will miss that end of the year refund, but it only counts if I get to keep it in the long run.

Kyle says:

That makes a lot of sense to me Tom, especially when you consider you can withdraw from the TFSA without it affecting your OAS and CPP cheques (can’t say the same for RRSP). Had you read this article before do you think it would have helped you make the decision? I’m always curious as to if the writing is structured in a way that makes sense for people to digest and take action with.

Daryl says:

How do RRSP’s and TSFA’s compair to IRP’s?

Kyle says:

IRPs are a much different product Daryl. They are slightly more complicated, but as a general rule I’d say most people are better off investing in their TFSA and RRSP first, before looking at less mainstream options such as IRPs. that being said, if you can max out the first two, there are some interesting scenarios where IRPs make some sense.

James says:

I didn’t really understand the part “If you don

Kyle says:

Hi James, basically the idea is that the major advantage the RRSP has is that it generates a tax refund for you right? That’s why we say it is “pre-tax income” – because after you get the refund it’s as if that money was never taxed at all. Now if you take that money and simply make a luxury purchase with it, then you essentially lose the advantage right?

Amer says:

My plan is simple with this, get RRSP to the 25k$ limit, use the tax refund I get to put in a TFSA account, and use the 25k$ To buy my first home. What next? Ain’t giving that 25k$ back to my rrsp. Instead am putting a big X to RRSP! How? If am making 100k$ a year, I will be taxed for 101666$ instead for not paying back my HBP, big deal… Not!
if you are still young, your best bet is TFSA. Remember TFSA is growing every year. Great advice to forget about the “saving accounts” and actually invest in real market instead!

Kyle says:

I think I follow you Amer, but here’s my question, why in your situation do you favour not paying the money back into your RRSP vs your TFSA? You’re going to pay a fairly high tax rate on that $1,666 before it goes into the TFSA – do you think you’ll have a comparable rate when you retire?

Zoey says:

I have found that the “benefit” of the TFSA, that you can take money out anytime, is actually a real negative for me.

I like having accounts where I put money in but can’t take it back out. Especially for retirement savings. So for me the RRSP wins most of the time 🙂

Kyle says:

Whatever actually encourages you to keep money in the bank is probably best in your specific situation Zoey! Great job figuring out a personal solution!

Angela says:

Great post! This really made the differences clear.

I would love some clarification on one point though. Why are TFSAs advertised as high interest savings accounts? Where does that come in in the big TFSA picture? Should that play any role in determining where to open a TFSA?

Kyle says:

Great question Angela! High interest savings accounts can be placed “within” a TFSA – but, they are often not an ideal use of the space. They are advertised this way because it sounds simple to people who don’t really understand what a TFSA is, and that simplicity makes it quite likely people will use the product – thus giving the lender (banks) more assets under management and more profits. I personally wouldn’t list it as a priority for where to open a TFSA, but then again I don’t plan on ever keeping a whole lot of money in a high-interest savings account!

Rob says:

I have maintained for years now that RRSP is the biggest scam going. You are seduced by a “tax refund”, which you often spend. You end up locking up money that is not guaranteed to compound at a rate anywhere near the rate at which it will be taxed down the road. RRSP serves one main purpose: to ensure the government will continue to tax you after age 71. If you have considerable money in your RRSP you also risk losing other “free” government benefits such as OAS. It’s a no-brainer. Choose TFSA and avoid getting burned by the CRA.

Kyle says:

Rob, while I see where some of the frustration comes from, I’m not sure I follow your math. What do you mean by saying “locking up money is that is not guaranteed to compound anywhere near the rate it will be taxed”? The compounding rate is kind of irrelevant. The idea is that even if your money didn’t grow at all (which it should obviously) then when you retired you would presumably be paying a lower marginal tax rate than you were during your working tax years – at least many people will be. You’re right about the OAS clawback, and I’m wondering if they’re eventually going to means-test that to include the TFSA as well.

AA says:

I’ve worked in the public sector for the last 4 years since graduating university. I contribute to a DBPP, but have a large amount of RRSP contribution room from past year (after my pension adjustment). I’m thinking of purchasing a home in the next year or 2, and am really not sure if I should put my downpayment savings in a RRSP to take advantage of the HBP. I’m not sure if I’ll stay in the public sector for the next 26 years to take advantage of my DBPP. What would you recommend I do?

Thanks for your input! I can’t figure out what’s best.

Kyle says:

Hello AA. Whether you stay in the DBPP or not is not the primary worry in this scenario I don’t think. The real choice is do you want to get into a house sooner, or allow your retirement savings compound for longer? Using the HBP basically allows you to borrow some compounding time from yourself, in order use pre-tax earnings for a downpayment right? So what’s more important, letting your money grow in the RRSP without getting raided (you’ll eventually pay this back anyway – or at least you really should – but in the meantime several years will likely have gone by) or getting into a house? It’s up to you. Personally, I’m not a fan of buying a house right now, by that’s just my opinion.

Carrie says:

I have a defined benefit pension plan and a higher income than my husband. I have been buying spousal RRSP’s. I get the tax break now and he will pay less tax when he withdraws them because he’ll have a much lower income.
We are hoping we can “catch up” and max out our TFSA’s once our mortgage is paid off.

Kyle says:

You can split RRIF income anyway Carrie, so you should be able to equal out the income for tax purposes when we retire. If you max out both RRSP and TFSA you are my hero. Great stuff.

Lee says:

Great post Young!! It’s astounding that people don’t take advantage of the TFSA as an investment tool – I guess the banks like to market that “HISA” to the gills. I’ve done both, but with varying degrees of importance….saving up for buying a house – max out that RRSP and put the return into your TFSA, then use the HBP! Then once settled into the mortgage, ensure TFSA is 100% used, whatever % the RRSPs are matched by employers (we don’t have pensions sadly) and enough to pay off the HBP loan, and if there’s surplus, then stick it on the family member’s RRSP where it would make the most ‘tax-sense’ (i.e. bracket lowering, at top of the anticipated wage scale, not on the one who has taken maternity leave for a year!). Sometimes life happens and the renovation or the new baby makes you unable to max out both, but that’s ok too – just have to be smart with those allocations, and sometimes defer the big refund to another year to save a $ overall. It’s a marathon, and not a sprint. I can’t imagine a scenario where we will ever have enough surplus to invest in non-registered accounts, but here’s hoping!

Kyle says:

Sounds like a great plan Lee. I hope that one day I have to figure out the minor headache of what to do with non-registered accounts – like you say, to have such problems eh?!

Gary says:

Sorry, Still confused.
If I contribute to a TFSA, is there a column in my income tax form that I enter the amount in order to lower my income? .. as is the case with an RRSP?
This before and after tax verbage makes no sense to me since I’m taxed on everything on my paycheque. Meaning everything is “after tax”.

Thanks very much.

Kyle says:

Hi Gary,

Your question is a common one! You pre-pay taxes on your paycheque right? But that’s before the government knows the precise amount that you owe. That’s why you get a refund when you contribute to an RRSP. The government looks at that contribution and basically says, “you paid too much this year, here is some of your money back”. When you contribute to a TFSA, the government essentially says, “good for you, you’ve already paid taxes on that money on your paycheque, so now you don’t owe us any taxes when you take money out of that account.” Does that make sense? It’s all about whether you pay taxes before money goes into the account, or after.

ECoo says:

What if you dont have an rrsp or tfsa yet and you dont have rrsp with workand your 52

Kyle says:

It doesn’t really matter what age you are ECoo, it’s more about your current income level and what you anticipate your retirement income levels looking like.

Paul says:

Lets say a person is making 150K / year. Taxes add up and with a 10% charitable contribution the refund is ok. TFSA or RRSP?

Kyle says:

Statistically speaking, you’re likely better off with an RRSP Paul, but it really depends on what your retirement income plans look like.

Ken says:

The RSP is a joke. When you take the money out, it is taxed according to your income for that year, and since many people will be in the same tax bracket, and some higher, there will be no tax savings, only deferrment. Further, RSP withdrawals will be taxed at the highest rate…..no capital gains or dividend advantages.

Kyle says:

Why does that make it a joke Ken? If you understand how to use RRSPs properly they can really help a lot of Canadians. Even the tax deferment is a big deal as it allows investments to compound without the taxman taking a bite.

Chet says:

Sometimes one forgets that TFSAs are transferred upon death to some else ie) Designation of Successor Holder and/or Beneficiary totally tax free. If a spouse then the entire amount transfers without additional room. If another person, successor holder, gets also tax free as well as it too bypasses probate depending on where you live. If one defines a beneficiary with an RRSP it will be taxed to the estate. The last to die may also have a much bigger tax liability. This may be important or a consideration in passing on wealth to the next generation…

Just some passing thoughts… There is definitely a room for both but “it depends” on personal philosophies etc…..

BL. If in a higher tax bracket and upon retirement in a lower bracket then RRSP may make sense; however, I lean towards a TFSA as I do not believe our tax system will reduce marginal tax rates as we address our social needs, health care, senior support etc.. etc..
Maximize TFSA while we still can.

Kyle says:

Great points Chet!

Nicky says:

Me and husband both filed tax last year for 980000$ income. We ended up paying out of out pocket. My employer deduct LAAP (pension plan 300$ amount)every month from my pay check and my husband does not have any pension plan. He doest want to buy RRSP because he said we can not take mony out of it when we need it or we will have to pay too much tax. Should we invest in TFSA than ?? Please help

Kyle says:

I would need way more info and context to properly say anything Nicky. Also, do you mean $98,000?

Bruce ratzlaff says:

What would the comparison look like if RPP’s were thrown into the mix too?

Michael says:

@young, I recently discovered this website and really enjoyed reading your post. My wife and I are always discussing the merits of investing in TFSA vs. RRSP, and I’m curious about what people’s thoughts are as to what we have chosen.

My wife and I are both educators and have an excellent, defined benefit pension plan. Each of us works full time and so we can count on a reasonable retirement income. As the pension plan is obviously registered, it’s my understanding that we are benefiting from tax deductions based on contributions to that pension.

That being said, my wife and I opened Tax Free Savings Accounts in each of our names as soon as we were employed out of university. Her account is intended for short term saving/spending goals, and when we had contributed the maximum amount to it, we used about half of it to pay for an auto loan that I got out of school as we needed a vehicle. Now that’s it’s been over a year, we plan to continue to contribute to it in the hopes of paying her large student loan off at some point.

We use my Tax Free Savings account as a long term investing tool that is invested in a diversified, medium risk mutual fund with the hopes that it will be an excellent supplement to our retirement income as (like you mentioned) the money will be easy to access and obviously tax free.

We do not invest in any RRSP aside from the pension contributions that we make on a monthly basis.

Any thoughts? I love the dialogue that occurs on this website and will continue to read it regularly. Thanks!

Kyle says:

@Michael – Hey Mike, I thought I could field this one for you since both my fiancee and I are teachers and are quite familiar with the defined benefit plans you are referring to.

The TFSA is definitely a great friend to someone in our position. Have you read our RRSP vs TFSA article? It sort of outlines the cost-benefit analysis. I’d say that for us the TFSA has a lot of flexibility advantages – BUT – only if it’s used for long-term savings and you’re not tempted to keep pulling the money in and out.

Thanks for stopping by and commenting! Have you checked out our Free eBook on how we invest?

Young says:

@Michael- Awesomeeeee! Max out TFSA! If you had a choice do TFSA first, if extra money lying around do RRSP.

I have been asked this question so many times, and the answer really depends on each individual’s personal situation. Their current tax bracket, risk tolerance (therefore expected returns), etc. Ideally, people should contribute the maximum to both every year.



Bodrey says:

If you’re earning a large income then it makes sense to invest in RRSPs to offset the higher rate of income taxes you’ll pay. IMO, that, and the fact that you can contribute much more to an RRSP than a TFSA (currently, anyway) are the only reasons to invest in an RRSP. Otherwise, a TFSA is the clear winner. For example, let’s say for argument’s sake you invest $5K in a TFSA and in 35 years it’s worth $30K. The initial $5k investment was made with after tax income but you won’t pay a cent in income taxes on the $25K ROI. Under the same scenario with an RRSP you’d have to pay income tax on every penny of that $25K. In addition (depending on how much you withdraw for retirement) if you’re eligible for the GIS it could be clawed back at an effective marginal tax rate of 50%! That’s brutal. And, whose to say in 20-30 years’ time (if not sooner) the government decides to apply the same rule to OAS? Due to demographics going forward, there will be fewer and fewer workers to pay CCP premiums for an ever-increasing number of retirees. So, in the long term the CPP is not sustainable unless taxes rise markedly or benefits are cut back. People need to take charge of their own retirement destinies and put as much away as they possibly can.

Kyle says:

I completely agree on your idea surrounding government clawbacks Bodrey. I think that scenario grows increasingly likely every year and why I too favour the TFSA. Thanks for the input!

Don says:

Dear Young, saw your site listed in National Post, Six of the coolest money websites. TFSA vs. RRSP post is ongoing family debate, so read all previous posts. This may be late but for my money TFSA’s all the way in to-days world of slow growth and low interest rates stretching till ?
If employed with no company pension a TFSA with no taxable income on retirement might even allow person to receive GIS if only taxable income is CPP and OAS. A trading TFSA account costs $50.00 yearly, no fee usually after $25,000.00. Good dividend paying stocks earning 4% and up add to return as well as hopeful increase in share price. All non-taxable in acc. $29.00 trading fee mentioned is only problem if engaged in frequent trading.
RRSP trading acc. usually costs $100.00 yearly, some no fee after 25K, some not until 100K. Trades same cost & returns as per TFSA BUT all taxable income whether withdrawn early or after retirement.
If you are going to be receiving a company/government pension TFSA would also be my way to go. IE: RCMP pension (indexed) increasing ever year even if slightly on top of CPP and OAS means even higher tax bracket to pay with RRSP returns. Wife with little or no income, priceless. If money contributed to his and her TFSA’s builds up till retirement, means cash windfall there to be employed however tax free. Plus with both receiving CPP and OAS and splitting his pension with no other taxable income ie: RRSPs, more tax savings.
Point for RRSPs, they can also be split with spouse, but point lost if both have them.
Family debate has both situations and unless government changes TFSA rules in future, looks like a good retirement tool to use.

Teacher Man says:

Hey Don,

We’re always happy when the mainstream press shines a little light in our direction!

First off, I myself am very upset by the fact I can’t use a TFSA right now – or rather the benefits don’t outweigh the drawbacks. As an American/Canadian citizen that has to file taxes in both countries the TFSA is a nightmare.

Now when it comes to factoring in GIS into the debate I’m not sure I would depend on our current retirement structure staying the way it is. Also, if you have that little income in retirement, the low tax rate you’d pay on RRSP withdrawals shouldn’t hurt you too bad, and should be down substantially from what it was in your working years?

The numbers in this article are now a little outdated. Get rid of all of those fees and go to a discount brokerage where your TFSA and RRSP are free, and where you can get your ETFs commission-free! Check out our recent Questrade updates for more info.

I completely agree that if you are getting a pension the TFSA looks a lot better, especially considering the move to raise tax rates on upper tier earners going forward in the Western World – as a teacher that can’t use a TFSA this makes me even more angry!

Check out our free ETF investing guide and see what you think!

Wow, what an extremely thorough and comprehensive post regarding the differences between these two savings vehicles, as well as what makes them good/not so good for those trying to choose between them. So often you find so much general information regarding these two, but no real in-depth, side by side comparison such as this. Thanks for posting!

Hi Young,

Robert has a point about the RRSP. No your not COOKOO!

With RRSPs you can contribute later.

Since 2005 the government has been looking at ways to clawback money like the OAS. We will see more changes to OAS. RRSPs really hurt if one has saved too much, later when you pay taxes.

How about something different?

At looking at the end game? Retirement? If you are lucky enough to have a full pension you have choices do you want more money now (at retirement) and less survivor money to go to your partner? With Life insurance you have choices? Can one get 7 or 8% guaranteed at retirement?

Life insurance (permanent) has a number of things going for it.

If you are disabled does the RRSP or TFSA continue to be funded to 60 or 65 every year?
Can you get all your money back plus interest?
Is there a death benefit?
Can you borrow from it and be credited for all your money?
Is there creditor protection?
Can you spend and enjoy your money with less risk and pay less taxes plus have more protection?

The problem is many people have no way of testing different models factoring taxes, inflation, markets etc. The current financial software(out in the market) really looks at rates of return, with out looking at other factors.

If you are interested I can do a short webinar on why one would want (not need) permanent life insurance as part of a retirement plan. Assuming they have a partner, kids, etc.



canadiancentsiq says:

It sounds to me like you need a complete Modern Canadian Personal Finance overhaul.
You have been indoctrinated into a belief system that is old and inefficient. The government and the banks only want one thing from you, for the banks its to keep you in debt for as long as possible, and the government wants your taxes.
You have the illusion of having savings while paying interest on debt. If you are willing to learn with an open mind, I will show you how you can pay off your mortgage and be debt free in 1/2 the time. You don’t need to get a second job, and you don’t need to stop having fun. The system I employ comes from Australia. It has been around for over 50 years and its the only way people bank. Let me know if this sounds like a better way.

young says:

@CCIQ- I know in Australia they have something similar to a tax free savings account. My aunt and uncle who are retired are enjoying something from their.. is it called a “super”?? Once I finish my HBP I am going to go to TFSA all the way.

canadiancentsiq says:

Dear young, I was referring to the way that Australians conduct their day to day banking. They have a solution that combines their chequeing account, mortgage, line of credit, credit card, and savings all within one product. This product allows for the mortgage to be paid off in half the time, saving the homeowner tens of thousands of $$$’s in interest expense. The mortgage portion is based on simple interest not compound interest that which Canadian banks use. I’m here to tell you that it has been here in Canada for the past 10 years. It is gaining momentum and the big banks are loosing clients to it. How would you like to tell your bank, “The Gravy Train Is Over” I have much more information to share.

young says:

@CCIQ- That sounds like the Manulife One to me.. do they still have that around?

Pamela says:

Hello, could you please share the solution you refer to that allows mortgage to be paid off in half the time? You mention it’s been here in Canada for 10 years? Thank you.

Info came from:

Robert says:

YoungandThrifty, I have to tell you the truth. Anyone who has a pension plan at work and contributes to an RRSP is “COOKOO”. Let me explain. In Canada we have a progressive tax system with increasing rates of taxation as your income reaches the predetermined thresholds. Now let’s say that your pension is going to pay you 70% of preretirement income. If you were earning $80K then pension would we $56K. Now here comes the terrible part.
At a taxable income of $56K you would have a marginal tax rate of 31% at todays tax rates. Then you start to receive income from your RRIF to the tune of $16K. You now have a total of $68K retirement income. Now your marginal tax rate is 33% and you have paid taxes on the RRIF income to the tune of $5000 When you deposited this $16K to your RRSP you received a tax deduction of $5600 if you were at a marginal tax rate of 35% So low and behold, for a $16K RRSP contribution your only gain in retirement was $600. The Canada Revenue Agency always gets their tax dollars. There are strategies that are OK, and there are strategies that are AMAZING. Would you take your Rolls Royce to Canadian Tire for and oil change?

EclecticInvestor says:

“Anyone with a pension” is too strong.

As I say … I have co-workers with a pension whose pension income will be five tax brackets lower than their current employment income.

OAS and CPP will influence this but not that much.

Kyle says:

That’s a good point Eclectic. I guess we were oversimplifying in order to explain how pension income affects tax brackets and the TFSA vs RRSP debate.


I lied. They actually match upto 3% of every pay cheque. So, essentially 6% of every pay is going towards my RRSP. They also offer a registered and non-registered employee stock purchase plan. They match 50% of your contribution into the ESPP upto 4% of your salary across both (the NR-ESPP and R-ESPP) plans.

I have chosen to sock away 3% of every pay into the RSPP and 4% of every pay into the R-ESPP so as to get the maximum possible match from my employer. Why turn down a guaranteed 100% and 50% ROI?

young says:

@Money In Training- That’s excellent! I agree. I think it’s funny why people would turn down employee matching. It’s free money!

Great post! Like some of the commenters above me, I have no idea what tax bracket I will be in when I retire. If I had to guess at this stage, I’d say I would be in a lower tax bracket, which would mean I should prefer socking money away in my RRSP before the TFSA.

However, I have read a few articles about METRs and how they can change your situation upon retirement. Currently, I don’t really understand the concept. Therefore, I have just started contributing to a TFSA (Questrade’s TFTA) since I already have 4% of each pay cheque going into my RRSP through my employer.

If nothing else, having a decent chunk of change in both the RRSP and TFSA will afford me more flexibility when I retire.

young says:

@Money in Training- Does your employer match the 4% that you put in your RRSP? You sound like you have a great plan ahead. I agree, the METR’s can be completely unknown in the future! I personally like the idea of both RRSP and TFSA as well, though I will probably focus more on my TFSA (provided it still exists in 20 years HA!) because of my defined benefit pension plan.

canadiancentsiq says:

Money in Training, For nearly 85% of Canadians, RRSP’s as a savings vehicle are the least efficient way to save for retirement. I say this because when you receive the income in retirement, you pay taxes on the money you originally deposited and all of the capital gains and dividends it earned. As an example, if your portfolio of investments earned $50K in Capital Gains and $25K in Dividends all would be taxed as employment income through the RRIF. If your tax rate was 30% in retirement you would pay in taxes to CRA $22.5K. If you had the investments in a “Cash Account” you would receive preferential tax rates of 15% on Capital Gains and 13% on Dividends. So all said and done you would pay a total of $10.7K in taxes. This means you got to keep an additional $11.8K in your pocket

Tom Eaton says:

@ young, thank you for explaining the difference between the two RRSPs & TFSAs.I think the way you and you wife are going about doing it is really smart, I might look into it for my self and my wife.

Tom Eaton
Web Developer http://www.bulbamerica.com
Philips Bulbs

young says:

@Tom Eaton- Thanks! Except I don’t have a wife lol….

Ronde says:

Sarah said, “I on the other hand, will not have the a great pension.. so RRSP seems like a better option for me.”

I’m in the same boat as you and your and your husband. I have a great pension, my wife has no pension. I take out Spousal RRSPs–I get to deduct the return and use it on the mortgage, SHE gets to withdraw the RRSP income when we retire and not be taxed because her income will be minimal. For people like us, RRSPs win over TFSAs all the time.

young says:

@Ronde- Very good point and analysis on the different scenarios and application of the RRSP for people with pensions and their spouses without.

Sarah says:

I’m back after several years! We ended up opening a spousal RRSP as well. It has been working out great for us. 🙂

Kyle says:

Great to hear Sarah! How are your overall investing goals coming along?

Sarah says:

I just found your site.. well, I am not sure how I got here.
Love it though.. am learning lots.

My husband and I are both 25 and living in Northern BC.

We often have this debate alot.. RRSP vs. TFSA. I’m all for TFSA because I am terrified we are going to be in a high tax bracket when we retire. Hubby is an RCMP officer so will have a good pension. He contributes more to his RRSP because he loves the tax return (sometimes I think he forgets that we’ll be paying all that tax later!) and puts every cent we get back onto our mortgage.

I on the other hand, will not have the a great pension.. so RRSP seems like a better option for me.

Anyways, my mind spins sometimes thinking about what to do, what is best… etc etc.. Hubby just tells me that atleast we are saving something. Some of our friends don’t even know what an RRSP is.. :S

young says:

@Sarah- I’m so happy that you enjoy my blog! Personally, I think a TFSA is where its at for us (especially us with pensions) because who knows when the rules might change? The RRSP is good though if you plan to use it for the HBP (Home Buyers Plan) or LLP (Lifelong learning plan). I think you should be very very proud that you contribute to an RRSP/ TFSA. I know many many many people who are my age (and even in their 30’s) are are not contributing to either.

Merlin says:

Ummm… I think people are highly neglecting the benefit of an RRSP.

The money is not taxed going in… it is tax deferred…. yes you do pay tax on the income gained but only on the back end when you take it out. It not only accumulates tax free but YOU DON’T PAY TAX GOING IN.

On the flip side…. with the TFSA you are dealing with after tax income…. So of course it is better that the tax income will never be taxed but you have to account for the fact that you are able to invest less because it is after tax dollars.

If the goal is to save for retirement it seems always better to invest in the RRSP first as you are essentially able to invest more because you pay less tax.

Imagine you are trying to figure out what to do with 8,000 ish dollars.

One option is to pay the tax upfront and then put the 5000 dollars into a TFSA.

The other option is to put the whole 8,000 into an RRSP (assuming you have room)…. if you have a cash flow issue you can borrow to put more in and pay off with the return.

The fact that you can essentially invest more (because you are allowed to invest the taxes) means that for retirement purposes you will almost always be better in a RRSP. Yes it is true you have to pay tax on the capital and the interest but here’s the thing – in the TFSA youalready paid the tax on the principle because it is after tax dollars you are investing….

young says:

@Merlin- Thanks so much for your comment. You have detailed the inverse relationship of the RRSP and the TFSA. It’s best to put money away in both, but if not possible, everyone has a different preference. I suppose it also is important to consider what tax bracket you are in too 🙂

Nicole says:

You forgot the major point of RRSPs for young folks:
Your allowable contribution limit for RRSPs will ROLL OVER from year to year. So you don’t have to contribute right away but it is worth doing so once you’ve settled into more permanent work and then you can make much more significant contributions.

and Andy wrote:

“My strategy this year is to max out RRSP contributions as much as possible and take the tax refunds and put it in TFSA”

This is SMART!

Patricia says:

Don’t forget that you can defer claiming the RRSP contribution until a higher earning year.

young says:

@Patricia- yes indeed! Thanks for pointing that out 🙂

Money Rabbit says:

I love both my RRSP and TFSA. My TFSA is used for my investments and its perfect, since I don’t have to pay taxes on any of the growth and I bought my stocks while I was a student, so I wasn’t taxed on the money I saved to buy into the market. But I love the RRSP tax refund, and I like the fact that it’s set aside specifically for my retirement, whereas my TFSA is a little more flexible with what I use the money for.

I also won’t have a very big pension (even though I’m employed full time, I don’t really work “for” a company, I work for two individuals, and so I’m not going to have a large pension to fall back on) so contributing to my RRSP helps me sleep at night.

young says:

@Money Rabbit- Sounds like a perfect game plan (save the money while you’re a student because it isn’t taxed and put it into a TFSA)! I agree that both are good, for different reasons, and you can’t really have one over the other. They are both great ways to save for retirement or other big life purchases (e.g. down payment, wedding etc.). Good tax shelters to keep the tax man away (for the time being, anyway!).

Wow. You really covered a lot of ground here. Nice job. I’ve written a lot about the benefits of TFSAs and I do think most Canadians aren’t using them enough yet. But I would never say that they are better or worse than RRSPs. It really depends on your personal situation.

We will continue to use both, but will probably top up our TFSAs first and then contribute to RRSPs. That’s because we already have a decent amount in RRSPs and we want to allow our TFSA savings to catch up a little. (Thanks for the mention! :))

young says:

@Balance Junkie- Thanks for visiting! 🙂 You could do what Andy suggests, which is to use your RRSP refund (or tax refund if you get one) to contribute to your TFSA. I’m pretty sure I’m going to be doing that this year.

Andy says:

My strategy this year is to max out RRSP contributions as much as possible and take the tax refunds and put it in TFSA. My reasoning is that who knows what the tax regime will be like in 30 years when I retire. Bear in mind, our country’s finance needs to survive the boomer seniors first. I suspect there won’t be enough money and they’ll encourage seniors to use up their nest egg by taxing it less. Lowering taxes on seniors will be popular and given they of all the various demographic groups is the one most likely to vote, makes political sense as well.

I contribute to RRSP to get my money back from the gov now and put it somewhere where they can’t get at it, unless they change TFSA rules. Basically, the government is betting on the uncertain future and lending you the money. Might as well take it.

young says:

@Andy- Excellent strategy. That’s what I plan to do too. Then it’s like a win-win-win situation! Good point that the tax regime will likely look very different 30 years down the road.

Definitely both for me. Many places offer an RRSP match which means you are losing money if you don’t at least take advantage of the match.

young says:

@Invest It Wisely- yes, thanks for mentioning the RRSP match (those good ol’ employers!) That is definitely a win-win scenario.

Fox says:

Great post YT!
Personally they both have their advantages. I borrowed for an RRSP yrs ago, paid it off and used the RRSP as my HBP, for my first home about two yrs ago.

I was thinking of getting into an TFSA. I just don’t find it feasable at the moment to invest, as I am eliminating debt. I may convernt some savings and bring them over to the TFSA.

Eitherway great post, well explained. Look for the feature in “Fox’s Weekend Blog Love”


young says:

@Fox- Thanks Fox (for the love). I would definitely get into a TFSA (especially since we’re both young). You could definitely convert some savings into a TFSA- because at the non-registered savings rate, you are basically paying for inflation AND you get taxed on the interest income.

SavingMentor says:

I agree, both can be a good option because you can withdraw from your TFSA in retirement to keep your retirement income low and also withdraw a little bit from your RRSP at a low marginal tax rate. That’s pretty win-win.

If you have a pension that will increase your income substantially every year, then TFSA would be the clear winner.

young says:

@SavingMentor- Definitely win-win, but there would have to be a clear distinction from which funds are for retirement in the TFSA, because it’s just way too easy to dip into the cookie jar when things are so easily accessible.

Jim Yih says:

Thanks for the mention. I really appreciate it. I like the siblings analogy. I’m not sure why their is such a surge of anti-RRSPers out there this year.

As you said, they are both good but for really different reasons. People who overgeneralize the tax consequences at the back end may not be cutting the RRSP short.

These accounts are not mutually exclusive. you do not have to buy one without the other. You can actually do both.


young says:

@Jim Yih- You’re welcome Jim. Agree- there’s been a lot of RRSP backlash, preferable to max out on both, if possible.

Etienne says:

TFSA 100% before RRSP.
RRSP you have to take funds out even if you have other revenue sources.. thus putting you in high tax brackets. Taxes are not likely to go down with the economy.
I would def. max out TFSA before putting money in RRSP.
TFSA your gains are not taxable, ever!

EclecticInvestor says:

YMMV … I have co-workers who’ve changed jobs several times.

The result is pension income is going to be a five tax bracket drop. They will have to add CPP, investment income and clawbacks to the mix but it is highly doubtful it will make up that much ground.

Good post Y&T.

I do disagree with one thing: “You can

young says:

@My Own Advisor- Oops- yes, thanks for the clarification. I was being too “absolute” with the RRSP- yes you can cash them out anytime but you will pay major tax for it- agree that its not preferable, but it is an option. Thanks for your additional tips (re: spousal RRSPs… I haven’t gotten a chance to look closely at that yet since I’m not a spouse yet 🙂 )

I can’t think of many situations where contributing to an RRSP is favorable to a TFSA.

The trouble I have with RRSPs is that I am speculating on what my tax rate might be 30-40 years from now. I haven’t a clue what my tax rate will be.. as such, I don’t feel compelled to try to max
it out.

For that matter, I actually hope to be paying the same or more taxes in my old age – that would mean I’ve got some sustained income.. so deferring the taxes could be a big mistake!

Kevin says:

RRSP is pre tax.
TFSA is post tax..

This means depending on ur tax bracket RRSP allows u to invest 30% more in comparison to TFSA.

5000 in TFSA becomes 13,266.49 in 20 years at 5% compounding annually
8000 in RRSP becomes 21,226.38 in 20 years at 5% compounding annually

Lets say tax rate increases to 35% when u retire (highly unlikely due to lower income during retirement but i will take ur argument on this one) 65% of 21,226.3 comes to 13797. So u are up ~500$ using RRSP.

Compound that by year on year investment and it could be significant amount

Teacher Man says:

Yup, that’s pretty much what the post says Kevin…

CraigM says:

Your math is wrong. 8000 of gross income equal 5600 of net at 30%. 5000 is a marginal tax rate of 37.5%.

8000 / 5600 works out to 14,858.

Regardless of the exact numbers, the tax and compounding effects are commutative – it doesn’t matter when the tax is taken out, only the rate at which it is taxed. If the tax rate is the same, you’ll end up with the same amount of money at the end with either TFSA or RRSP – the tiebreaker is the income-tested benefits and RRIF effects on average withdrawn tax rate.

TFSA anytime over RRSPs. Simply because in the end there’s no paperwork or taxes related to your activity (wins, losses, withdrawals, etc)

TFSA – we have pensions as well. Though we WILL max those out pretty soon leaving us with the option of non registered accts or RRSP at which time we’ll gladly invest in the RRSP as our salaries are starting to get to a point where our tax rate is going up too often.

young says:

@Sustainable PF- Hey, that’s a nice problem to have!! 🙂 It’s like a bittersweet accomplishment, heading to the next tax bracket.