Asking yourself these three questions about your goals, tax considerations and contribution room can help you make the right decision.
TFSAs (tax-free savings accounts) and RRSPs (registered retirement savings plans) are two of the most popular registered accounts held by Canadians, and they have plenty in common at first blush. They boast tax advantages on income (unlike non-registered accounts) and can hold a variety of qualified investments, including stocks, ETFs (exchange-traded funds), mutual funds, GICs (guaranteed investment certificates), bonds and more.
But for all their similarities, sometimes it can be beneficial to use one before the other. Factors like one’s timeline (how long until the money is needed), tax considerations and one’s ability to contribute can all play a part in determining which account type may be more suitable for achieving specific financial goals.
If you find yourself wondering whether you should choose a TFSA or RRSP, ask yourself these three questions.
How soon do I need the money?
Perhaps you need the money sooner than later, or maybe you have longer-term goals around funding education, buying a home or retirement. Depending on your needs, there may be advantages to leaning more toward one than the other.
A TFSA helps you save for any goal – from next summer’s vacation abroad to supplementing your retirement later on— with tax-free growth. That means you can pull the money out without impacting your taxable income, whether that includes capital gains on your investments or cash flow generated by dividends.
An RRSP is geared more specifically toward retirement savings, with tax-deductible contributions and tax-deferred growth of your investments. It is possible to withdraw funds from an RRSP without paying tax before retirement in a couple of situations. First-time homebuyers can remove up to $60,000 from their RRSP (as of April 2024) toward a home purchase (Home Buyers’ Plan); similarly, investors can withdraw up to $20,000 from their RRSP to pay for education (Lifelong Learning Plan), and with the maximum withdrawal amount of $10,000 in any calendar year. The amounts taken out of the account must be paid back within 15 and 10 years, respectively.
How might my income change?
Put another way, is it more advantageous to reduce your income taxes now or later in life? For many investors, the tax implications of each account type play a big part in deciding between prioritizing contributions to a TFSA or RRSP.
Investors contribute to a TFSA with after-tax income. That means if you’re an earner in a lower tax bracket who expects your income to increase over time – say, a young professional who just started your career – it could be more efficient to contribute to a TFSA while your income is taxed at a lower rate. Later on, any TFSA withdrawals won’t be added to your (now hopefully greater!) income.
RRSP contributions, on the other hand, are made with pre-tax income and can be used to lower your income tax bill at the end of the year or in future years. However, any funds you pull out of your RRSP are considered taxable income. High earners and folks in their peak earning years may benefit from contributing to an RRSP to cut down their tax liability. Additionally, these same investors could benefit from deferring paying tax on RRSP contributions until later in life. Retirees typically earn less than when they were earning employment income, and are more likely to pay tax at a lower tax rate when they withdraw.
How much would I contribute?
It is also important to consider how much of your current income you are willing or able to contribute to either account type.
The TFSA contribution limit is defined annually by the Canada Revenue Agency (CRA) – for example, the TFSA contribution limit for the 2026 tax year is $7,000. If you contribute less than your maximum, any unused contribution room is carried forward from the day you are eligible for an account. If you were 18 in 2009 and have not contributed anything to your TFSA, you’ll have amaximum $109,000 of room for the 2026 tax year. (Use our TFSA calculator to see how much you can save in this account.) For RRSPs, the contribution limit is 18 per cent of earned income reported on your tax return the previous year, up to a maximum of $32,490 for the 2025 tax year and $33,810 for the 2026 tax year.
If you’ve already maxed out one account type (go you!), you could open and fund the other if you haven’t yet reached your savings goals for the year. Keep in mind: Over-contributing to a maxed-out TFSA or RRSP can carry penalties. Some investors may be caught unaware, especially if they receive a boost through employer matching. You can see how much TFSA and RRSP contribution room you have available through “My Account” on the Canada Revenue Agency website.
Once you have determined whether you should open an RRSP or a TFSA (or both!), visit Find my Investment Fit where you can complete a short quiz that will direct you to the investment platform at RBC that may be a good fit for you.
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