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Why this recommendation — 4 factors explained
TFSA vs. RRSP — for your situation
| TFSA | RRSP |
|---|
How contributions work
TFSA: You contribute after-tax dollars. There is no tax deduction when you contribute. But all growth is tax-free, and all withdrawals are completely tax-free, forever — regardless of your income in retirement.
RRSP: You contribute pre-tax dollars and receive a tax deduction reducing your taxable income today. But all withdrawals in retirement are taxed as regular income.
The key trade-off
The RRSP is best when your tax rate when you contribute is higher than your tax rate when you withdraw. The TFSA is best when your tax rates are similar, when you expect high retirement income, or when you want total flexibility.
Both can be used together
This isn't an either/or — both accounts have merit. The question is which to prioritize when you have limited funds. Once you're maximizing both, you've built an excellent tax-sheltered foundation.
2026 annual limits: TFSA — $7,000 per year. RRSP — 18% of your prior year earned income (up to $32,490 for 2026). Unused room carries forward for both accounts.