Tax-free accounts
TFSA vs RRSP: Which Is Better?
When a TFSA beats an RRSP and vice versa, by income level, with the 2026 limits and the rules that decide it.
Is a TFSA or RRSP better?
It depends on your tax rate now versus in retirement. RRSP: deduct now, pay tax on withdrawal. TFSA: no deduction, tax-free withdrawal. If your tax rate is higher today than it will be in retirement, the RRSP comes out ahead; if it’s the same or lower, the TFSA wins or ties.
| TFSA | RRSP | |
|---|---|---|
| 2026 limit | $7,000 (cumulative $109,000) | 18% of income, max $33,810 |
| Tax deduction | No | Yes |
| Withdrawals | Tax-free, room comes back next year | Taxed as income; room lost |
| Affects OAS/GIS | No | Withdrawals count as income |
| Home purchase | Any time | Home Buyers’ Plan up to $60,000 |
| Deadline | None | March 1, 2027 for 2026 |
Which should I choose at my income?
Under about $55,000: TFSA first (your RRSP refund would be small). $55,000–$110,000: both, with RRSP for retirement and TFSA for flexibility. Over $110,000: max the RRSP, then the TFSA.
Can I use the RRSP refund to fund my TFSA?
Yes, and it’s a common strategy: contribute to your RRSP, then put the tax refund into your TFSA.
Where does the FHSA fit in?
If you’re a first-time home buyer, the FHSA beats both: a deduction like an RRSP and tax-free withdrawals like a TFSA, up to $8,000 a year and $40,000 total.
Official sources and further reading
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