The Classic Debate RRSP or TFSA ?



It is the classic debate for Canadians, should they contribute to their Registered Retirement Savings Plan (RRSP)  or Tax Free Savings Account (TFSA)? 

When it comes to making a choice between a TFSA or RRSP, many factors come into play and each individual circumstance is a little different. For some Canadians a combination of RRSP and TFSA is the best plan for retirement.

TFSA is after tax income

Your TFSA contributions have already been taxed and there is no tax break comes tax time. It doesn’t matter what your tax rate is when you withdraw, it is all tax free capital gains/interest. Any unused contribution room can be carried forward indefinitely.

You can invest in almost anything through your TFSA, including mutual funds, ETF, stocks, GIC, bonds, etc. Funds can be withdrawn from your TFSA at any time without tax implications and can be contributed back the following calendar year or later without penalty.

RRSP is tax deferred income

Your RRSP contribution is pre-tax income and you will get a tax refund when you file your tax return. All of the money, including the gains/interest in the RRSP will be taxed at your current tax rate when you withdraw. Unused RRSP contribution room can be carried forward from one year to the next without penalty.

You can invest in almost anything through your RRSP, mutual funds, ETF, stocks, GICs, bonds, etc. Funds can be withdrawn tax free with the First Time Home Buyer’s Plan and Lifelong Learning Plans but must be re-contributed back in 10 years for education loans and 15 years for home purchase loans.


Depending on your circumstances, the TFSA and RRSP both offer excellent investment opportunities. While the RRSP remains a favorite in retirement savings plans. Contributing to the RRSP makes the most sense when your marginal tax rate at the time of contribution is greater than your marginal tax rate at the time of withdrawal. The TFSA offers other retirement strategies for high and low income individuals, and seniors nearing retirement. I prefer to use a TFSA, as all money earned and contributed has no tax consequences with lots of flexibility. For high income earners one possibility is to contribute to the RRSP and use the tax deduction to fund your TFSA.

HERE is an article from MoneySense that gives you a good example of RRSP vs TFSA.


Don’t wait for retirement to enjoy life !!


  1. Good comparison, Steve. It sounds each plan has pros and cons. For TFSA, it’s great the gains/interest are tax free. That will be quite a lot of tax savings over the long haul.

    For RRSP, as you mentioned, it’s a good option if the tax rate is lower at the time of withdrawal. But, it’s hard to predict the tax rate 10-20 years down the road. Government could change it. Or the income could go up, which will be a bitter sweet thing.

    • Hi Helen

      Yes both have pros and cons but they are much better than having your money outside of a registered account. I lean towards the TFSA as a better option but RRSP are a good option if the tax rate is lower at the time of withdrawal. Both are a great way to save for retirement.

  2. Hi Steve,
    Good explanation for me being a US citizen. They are similar to our after tax Roth options and pre-tax deferred 401k and traditional IRA options. I always found it hard to decide because the future of tax rates and personal wealth/income are hard to project out 30+ years. If possible, it’s nice to do a mix a both to hedge against uncertainty. It’s like diversify your investments. One is just diversifying the types of investment vehicles as well. Tom

    • Hi Tom

      I never thought of it as diversifying your investment vehicle (I like it). It is not only hard to project 30+ years away, with the amount of debt that governments owe I am sure the tax laws will change a lot.

  3. I recently started a Roth IRA (TFSA) and I am loving it. Tax-advantaged growth is amazing. I also like the ability to withdraw my contributions without any tax implications. Seems like RRSP would provide more investment space.

    • Hey DG,
      That’s awesome you started your Roth IRA, the flexibility makes the TFSA(Roth IRA) great. The down side is you can only put $5500 in a year. Tax-advantaged growth is amazing!

  4. All good points! From looking closely at the TFSA vs. RRSP, I also find that it makes more sense to first utilize your TFSA if you are in a low income tax bracket, while those in a high tax bracket maximize the use of their RRSP to generate significant tax refunds which they can then funnel into their TFSA. In all, use of either one is a good strategy for saving and/or investing.

    • Hi Enoch

      Yes I just wished the contribution limit to the TFSA was kept at $10 k. Both are a great way to save for retirement.

  5. Nice summary here, Steve!

    I used to be indecisive with which one to max out first, so I would just start contributing to both, with more emphasis on the TFSA. And then eventually working on the RRSP.

    I know there are some who choose to max out their tfsa and then start investing in non-registered accounts (never using their room in the RRSP) because they predict their future income to be significantly higher than now.

    I’d probably choose to contribute in the RRSP anyway because the future is uncertain, plus they’d be missing out the compound growth of the sheltered money over the years.

    • It is so hard too predict the future, especially when you are talking 30 + years. I wish I had a crystal ball so I know the day I die, the tax rate , and income at retirement. That would make retirement planning so much easier.

    • Thanks for the link Caroline, that MoneySense article is very good. A good mix of RRSP & TFSA and good planning can save thousands in taxes.

  6. Really great insight for me into the systems of other countries. Being from Australia, it is great to learn how other countries work and the pro’s and con’s of each system. Keep up the great work!

    • Welcome professor,
      Thanks for the kind words. I just looked at your blog Money Degree, it has lots of good information. I will be back to read more.

  7. Ahh the age old debate since 2009! I like to maximize both! They are both good but my preference is for the TFSA, perhaps because I can’t contribute so much to my RRSP anyway because of my pension.

    • Hi GYM,
      Max both is the ideal option if you can. It is so nice you have a pension, not many people have a pension anymore.

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