RRSP or TFSA? A clear comparison for Canadian savers

The core difference

An RRSP gives you the deduction now and taxes the withdrawal later. A TFSA gives you no deduction now, and income and gains earned inside it are not taxed, nor are withdrawals. Everything else follows from that.

The rule of thumb that usually settles it

If you expect your income to be higher now than when you withdraw, the RRSP usually wins. If you expect it to be lower now — early career, a year out of work, a period of study — the TFSA usually wins. If the two are similar, the TFSA's flexibility tends to decide it.

What the rule of thumb misses

Income-tested benefits. RRSP withdrawals count as income and can reduce benefits in retirement; TFSA withdrawals do not count at all. For anyone likely to be near a benefit threshold, that can matter more than the marginal rate.

Contribution room

RRSP room is 18% of the previous year's earned income up to an annual dollar limit — $33,810 for 2026 — reduced by any pension adjustment, so above roughly $188,000 of earned income it stops growing. TFSA room is a flat annual amount, $7,000 for 2026, for every resident aged 18 or over; it does not depend on income, but none accrues for years you were under 18 or not resident in Canada. Someone 18 or older and resident since 2009 has $109,000 of cumulative room in 2026. Both carry forward if unused.

Withdrawals

TFSA withdrawals are free and the room returns the following calendar year — not the same year, which is the trap that catches people who take money out and put it back in December. RRSP withdrawals are taxed, with tax withheld at source, and the room is gone permanently, except under the Home Buyers' Plan or Lifelong Learning Plan.