RRSP vs TFSA Canada
Tax deduction in, taxed out (RRSP) versus after-tax in, tax-free out (TFSA). Which wrapper actually leaves you with more money — and at what marginal rate.
Side-by-side comparison
| Feature | RRSP | TFSA |
|---|---|---|
| Tax deduction on contribution | Yes, at your marginal rate | No |
| Growth taxed inside? | No (tax-deferred) | No (tax-free forever) |
| Tax on withdrawal | Full amount taxed as income | Zero — tax-free |
| 2026 contribution limit | 18% × prior earned income, max $33,810 | $7,000 (cumulative since 2009) |
| Lifetime contribution cap | No cap (annual limit only) | $102,000 if eligible since 2009 |
| Mandatory withdrawal age | 71 (RRIF conversion) | None — keep until death |
| Withdrawal restores room? | No (gone permanently) | Yes (next January 1) |
| Reduces OAS / GIS? | Yes (counts as income) | No |
| HBP / LLP withdrawal? | Yes (HBP $60k, LLP $20k) | N/A |
| Spousal version | Yes (Spousal RRSP) | Effectively yes (gift cash) |
| Over-contribution penalty | 1%/mo above $2k buffer | 1%/mo with no buffer |
Worked example: $7,000 net into each, 30 years at 6%
A $50k, $100k, and $150k earner each contributes $7,000 of net (after-tax) take-home pay. The RRSP grosses up the deposit using the marginal-rate refund. Both grow at 6% nominal for 30 years; lump-sum withdrawal at retirement marginal rates of 25% (typical for retirees with combined CPP + OAS + modest RRIF):
| Earner | Marginal rate | RRSP gross deposit | After 30y at 6% (RRSP) | RRSP after 25% withdrawal tax | TFSA after 30y at 6% |
|---|---|---|---|---|---|
| $50k earner | ~25% | $9,333 | $53,610 | $40,208 | $40,208 |
| $100k earner | ~37% | $11,111 | $63,820 | $47,865 | $40,208 |
| $150k earner | ~45% | $12,727 | $73,099 | $54,824 | $40,208 |
For the $50k earner, RRSP and TFSA tie when retirement rate equals contribution rate. For the $100k earner, RRSP wins by ~19% net. For the $150k earner, RRSP wins by ~36% net. These figures assume retirement at the same withdrawal rate (25%); higher retirement rates (or OAS clawback) shrink the RRSP advantage.
Frequently asked questions
What's the headline difference between an RRSP and a TFSA?
An RRSP gives you a tax deduction at your marginal rate going in but every dollar withdrawn is added to taxable income. A TFSA is funded with after-tax money — no deduction in — but withdrawals (contributions and growth) are 100% tax-free for life. RRSP is a tax-deferral; TFSA is a tax-exemption.
What are the contribution limits for 2026?
RRSP: 18% of prior-year earned income, capped at $33,810 for 2026, plus any unused carry-forward room reported on your CRA Notice of Assessment. TFSA: $7,000 for 2026 plus all unused room since you turned 18 (cumulative $102,000 if eligible since 2009). The TFSA contribution limit is the same for everyone regardless of income.
Which one wins for a high earner?
For a 45% marginal-rate earner, $1,000 contributed to an RRSP costs only $550 net (a $450 refund), then grows tax-deferred. If withdrawn at retirement at a 30% marginal rate, the after-tax outcome typically beats a TFSA-equivalent contribution by ~15–25%. The RRSP wins whenever your retirement marginal rate is lower than your contribution-year marginal rate. The OAS clawback (15% above $93,454 in 2025) effectively raises retirement marginal rates and can flip the answer for some retirees.
Which one wins for a lower earner?
For someone earning under ~$55,000 — particularly anyone receiving GIS-eligible benefits in retirement — TFSA almost always wins. RRSP withdrawals reduce or eliminate the Guaranteed Income Supplement at 50% (effectively a 50% marginal tax). TFSA withdrawals do not. Lower-income workers also see less benefit from the upfront RRSP deduction since the deduction is taken at a low marginal rate.
How does the FHSA fit in?
The First Home Savings Account (FHSA) combines the best of both: tax deduction in (like RRSP) AND tax-free out (like TFSA), but only for a qualifying first-home purchase. Annual limit is $8,000, lifetime cap $40,000. First-time buyers should max FHSA before TFSA or RRSP — see our FHSA vs HBP compare.
Can I have both? Should I?
Yes. Most Canadians should use both wrappers. A common ordering: (1) FHSA if you are buying your first home, (2) employer-matched group RRSP (for the match), (3) TFSA if your marginal rate is below ~30%, (4) RRSP if your marginal rate is above ~30% and you expect a lower retirement rate. RESP (with the 20% CESG match) takes priority over both for kids' education savings.
What happens to my RRSP when I retire?
You must convert your RRSP to a RRIF (or annuity) by December 31 of the year you turn 71. From 72 onward, CRA prescribes a minimum withdrawal each year — at 72 it is 5.40% of January 1 balance, climbing to 20% by age 95. RRIF withdrawals are taxable income, can trigger OAS clawback, and once started cannot be reduced below the prescribed minimum.
What is the over-contribution penalty for each?
RRSP: $2,000 over-contribution buffer is allowed (no penalty), then 1% per month on excess above that. TFSA: no buffer at all — every dollar over your room is taxed at 1% per month for every month the excess remains. The most common TFSA mistake is re-contributing a withdrawal in the same year — withdrawals only restore room on January 1 of the following year.
Try the relevant calculators
- RRSP vs TFSA Break-Even Calculator — interactive tool with per-province break-even by income
- RRSP Calculator — tax savings on a contribution and projected balance at retirement
- TFSA Calculator — cumulative room and tax-free growth projection
- RRSP Withdrawal Tax — withholding and full marginal-rate tax on a single withdrawal
- RRIF Minimum Withdrawal — CRA-prescribed minimum withdrawal by age
- OAS Clawback Calculator — when RRSP/RRIF income triggers the recovery tax
- FHSA Calculator — first-home wrapper that combines RRSP-style deduction with TFSA-style tax-free withdrawal