The RRSP and TFSA are Canada's most powerful savings vehicles — yet many Canadians use them sub-optimally.
The Core Difference: When You Pay Tax
- RRSP: Tax deduction NOW when you contribute; pay tax LATER on withdrawal
- TFSA: No deduction on contribution; all growth and withdrawals permanently tax-free
When RRSP Wins
The RRSP wins when you're in a higher bracket now than in retirement. At $90,000 income today (~38% marginal rate), a $10,000 RRSP contribution saves ~$3,800 now. Withdrawing in retirement at ~22% rate saves ~16% permanently.
When TFSA Wins
TFSA is superior when income is lower now (students, early career), you need funds before retirement, or you hold high-yield investments generating interest income.
💡 Rule of Thumb: TFSA first if income under $50K; RRSP first if over $70K. Between $50–70K, maximize both. Use RRSP refunds to fund your TFSA.
2024 Contribution Limits
- RRSP: 18% of prior year income, max $31,560. Unused room carries forward indefinitely.
- TFSA: $7,000 annual room. Cumulative since 2009: ~$95,000 for full eligibility.