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RRSPs RRIFs and TFSAs  ->  Tax-free savings accounts (TFSAs) -> TFSA vs RRSP

Which is Better - TFSA or RRSP?

Contributions to an RRSP are tax-deductible, and contributions to a TFSA are not.

The RRSP and TFSA have almost equivalent results when the marginal rate for RRSP contributions is the same as for RRSP withdrawals.

The RRSP is better if

bullet the marginal tax rate for RRSP withdrawals will be lower than the marginal tax rate when contributions are made
bullet you are saving to use as a last resort fund for emergencies

The TFSA is better if

bulletyou are in the lowest tax bracket
bullet the marginal rate for RRSP withdrawals will be higher than the marginal rate for contributions
bullet you are close to retirement age, and have little or no savings or pension.  RRSP/RRIF withdrawals may cause loss of Guaranteed Income Supplement (GIS) or other benefits.
bullet further RRSP contributions will result in withdrawals which are high enough to cause a clawback of your Old Age Security.

The TFSA will be useful in some situations such as:

bullet when there is no RRSP contribution room available
bullet for savings goals such as a vehicle, appliances, down payment for a house, etc.  The TFSA could be used instead of, or in combination with, the RRSP Home Buyer's Plan (HBP).
bullet seniors who are not eligible, because of age, to contribute to an RRSP
bullet young people just starting out, in a low tax bracket now, expecting to increase earnings and be in a higher tax bracket in a few years.  At that time, the TFSAs could  be transferred to an RRSP, making the contribution when the tax savings is greater.  Make the transfer near the end of a calendar year, so that the withdrawal increases your TFSA contribution room sooner.

Use our TFSA vs RRSP Calculator to help you decide which type of account is better for you.

Tax Tip:  If you're in the lowest tax bracket, use TFSAs first.  The lowest federal tax bracket goes up to taxable income of $48,535 in 2020, and $49,020 in 2021.


TFSA Contribution Rules and Limits / Leaving Canada

Don't Overcontribute!

Unused Contribution Room

TFSA Investments - qualified, non-qualified, and prohibited

TFSA Withdrawals

Asset Transfer (Swap) Transactions

Taxes Payable re TFSA

Marital Breakdown

Death of the TFSA Holder

Back to TFSA main page.

Revised: October 23, 2021



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