Both shelter your investments from tax. The RRSP gives you a deduction now and taxes withdrawals later; the TFSA gives no deduction but withdrawals are completely tax-free. The right choice usually comes down to one question: is your tax rate higher now, or will it be in retirement?
How each one works
An RRSP contribution is deducted from your income this year, so you pay less tax now. The money grows tax-sheltered, and you pay tax when you withdraw it — ideally in retirement when your income, and therefore your rate, is lower.
A TFSA contribution gives you no deduction today — you fund it with after-tax dollars. But everything inside grows tax-free, and withdrawals are never taxed and don't count as income. The 2026 TFSA limit is $7,000.
The deciding question
When the TFSA wins
- You're early in your career or in a lower bracket today.
- You want flexibility — withdraw anytime, for any reason, and regain the room next year.
- You're worried about retirement-income clawbacks like OAS, which the TFSA doesn't trigger.
When the RRSP wins
- You're in a high bracket now and expect a lower one in retirement.
- You want the discipline of a less-accessible account.
- You can use the refund productively — ideally reinvesting it.
You don't have to pick just one
Most Canadians benefit from using both over time. A common pattern: TFSA first while income is modest, then shift toward RRSP as income — and your marginal rate — climbs. Check your current marginal rate with our calculator to see which side of the line you're on.
This article is general information, not financial, tax, or medical advice. See our disclaimer.