Should I contribute to a TFSA or an RRSP first?

It depends on your marginal tax rate now versus in retirement. If you expect to be in a lower tax bracket when you withdraw, the RRSP generally wins because you deduct at a high rate and withdraw at a low one. If you expect a similar or higher rate later, or your income is currently low, the TFSA generally wins. At the same rate in both periods, the two are mathematically equivalent.

What are the 2026 TFSA and RRSP contribution limits in Canada?

For 2026 the TFSA annual limit is $7,000. RRSP room is 18% of your previous year's earned income up to a maximum of $33,810, reduced by any pension adjustment. Unused room in both accounts carries forward indefinitely.

Do I pay tax when I withdraw from a TFSA?

No. TFSA withdrawals are completely tax-free and are not counted as income, so they do not affect income-tested benefits such as OAS or GIS. The amount you withdraw is added back to your contribution room on January 1 of the following year.

What happens to my RRSP refund?

An RRSP contribution reduces your taxable income, generating a refund at your marginal rate. The RRSP's advantage over a TFSA depends on that refund being invested rather than spent. If you spend the refund, an RRSP contribution generally underperforms the equivalent TFSA contribution.

Can I have a TFSA, RRSP and FHSA at the same time?

Yes. The three accounts have separate contribution room and can be used together. The FHSA is limited to $8,000 per year with a $40,000 lifetime cap and is intended for a first home purchase, combining an RRSP-style deduction with TFSA-style tax-free qualifying withdrawals.

What happens if I over-contribute to my TFSA?

The Canada Revenue Agency charges a penalty of 1% per month on the highest excess amount in the account for each month the over-contribution remains. Unlike the RRSP, the TFSA has no over-contribution buffer, so the penalty applies from the first dollar over your limit.

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TFSA vs RRSP: which should you use first?

Canada · 2026 figures · Last updated August 2026

The honest answer is that it depends on one number: your marginal tax rate today compared to your marginal tax rate when you take the money out. Everything else is detail. This page covers the detail.

The one-sentence version

An RRSP gives you a deduction now and taxes the withdrawal later. A TFSA gives you no deduction now and taxes nothing later. If your tax rate is identical in both periods, the two produce exactly the same after-tax result — the decision only matters because most people's rate changes between now and retirement.

If you deduct at 43% and withdraw at 25%, the RRSP captures that 18-point gap. If you deduct at 20% and withdraw at 30% — common for someone early in their career, or someone who will have a large pension — the TFSA wins and the RRSP actively costs you.

2026 contribution room

	TFSA	RRSP	FHSA
2026 limit	$7,000	18% of earned income, max $33,810	$8,000/yr, $40,000 lifetime
Deduction now?	No	Yes	Yes
Growth taxed?	No	No (deferred)	No
Withdrawal taxed?	No	Yes, as income	No, if qualifying home purchase
Room restored after withdrawal?	Yes, next Jan 1	No	No
Affects OAS/GIS clawback?	No	Yes	No

Unused room carries forward indefinitely in all three accounts, so a year you cannot contribute is deferred, not lost. RRSP room is also reduced by a pension adjustment if you belong to a workplace pension plan — check your CRA My Account for your actual number rather than calculating 18% yourself.

When the RRSP wins

You are in a high bracket now and expect a lower one later. This is the classic case: a mid-to-late-career professional with no defined-benefit pension.
Your employer matches RRSP contributions. A match is an immediate guaranteed return that dwarfs the TFSA-versus-RRSP question. Take the full match before optimising anything else.
You want the money locked away. Withdrawing from an RRSP is taxable and the room is gone forever, which is a real deterrent. The TFSA's flexibility is a genuine downside for some people.
You are near an income-tested threshold. An RRSP deduction lowers net income, which can increase the Canada Child Benefit or reduce a clawback in the contribution year.

When the TFSA wins

Your income is currently low. A student, someone early in their career, or anyone in a year of reduced earnings. Deducting at 20% to withdraw at 30% is a losing trade — and RRSP room carries forward, so you can deduct later at a higher rate instead.
You will have a large pension or significant RRSP balance already. Mandatory RRIF withdrawals after 71 can push retirement income higher than working income, which inverts the usual assumption.
You may need the money. TFSA withdrawals are tax-free and the room comes back the following January.
You are worried about OAS clawback. TFSA withdrawals are not income, so they do not trigger it. RRIF withdrawals do.

The refund trap

This is the part most comparisons skip, and it is where the RRSP advantage most often evaporates in practice.

A $10,000 RRSP contribution at a 40% marginal rate generates a $4,000 refund. The RRSP only beats the TFSA if that $4,000 is also invested. Contributing $10,000 to an RRSP and spending the refund is roughly equivalent to contributing $6,000 to a TFSA — you have taken the deduction and consumed the benefit.

Put differently: the correct comparison is not "$10,000 in an RRSP versus $10,000 in a TFSA." It is "$10,000 in an RRSP plus the invested refund versus $10,000 in a TFSA." If the refund reliably becomes a vacation, the TFSA is the better account for you regardless of what the arithmetic says.

Where the FHSA fits

If you are a first-time home buyer, the FHSA is usually the first account to fill, because it is the only one that gives you both sides of the benefit: a deduction going in like an RRSP, and a tax-free qualifying withdrawal like a TFSA. It is capped at $8,000 per year and $40,000 in total, and the account must be used within 15 years of opening it.

If you do not end up buying a home, the balance can generally be transferred to an RRSP or RRIF without using RRSP room, so opening one early is low-risk if there is any chance you will buy.

A reasonable default order

For someone with no workplace pension and no immediate home purchase planned, a common ordering is:

Any employer match, in full — it is free money and outranks everything below
FHSA, if buying a first home is plausible within 15 years
RRSP if your marginal rate is high today; TFSA if it is not
Whichever of the two you skipped
A taxable account once registered room is exhausted

This is a starting point, not a rule. Pensions, self-employment income, a spouse in a very different bracket, and expected inheritances all change it.

Run it on your own numbers. Finance Simulator estimates your marginal rate from your salary and province, shows your TFSA/RRSP/FHSA room, projects growth in each, and calculates the RRSP refund your contributions would generate.

Open the calculator → Free, no account, nothing sent to a server.

Frequently asked questions

Do TFSA withdrawals count as income?

No. They are not taxable and are not included in net income, so they do not affect OAS, GIS, the Canada Child Benefit, or any other income-tested program.

What happens if I over-contribute?

The TFSA has no buffer — the CRA charges 1% per month on the highest excess amount, from the first dollar over. The RRSP allows a $2,000 lifetime cushion before the same 1% monthly penalty applies. TFSA room is also not restored until January 1 of the following year, which is the most common way people accidentally over-contribute: withdrawing and re-contributing in the same calendar year.

Can I contribute to a spouse's RRSP?

Yes. A spousal RRSP uses your room and gives you the deduction, but the funds belong to your spouse and are taxed in their hands on withdrawal (subject to attribution rules if withdrawn within three years). This is a way to even out retirement income between two people in different brackets.

Is the RRSP deadline the same as the tax deadline?

No. RRSP contributions for a given tax year must be made within the first 60 days of the following calendar year. TFSA contributions follow the calendar year with no equivalent grace period.

Where to open one

Both accounts are offered by every Canadian bank and brokerage, and the choice of account type above matters far more than the choice of provider. For what it is worth, I use Wealthsimple for my own investing — it carries TFSA, RRSP and FHSA accounts with no commission on stocks and ETFs.

Open a Wealthsimple account — $25 bonus after a $100 deposit →

Referral link — completely optional, and nothing above changes if you skip it. Code 3JNWOG applies automatically. It is what keeps this tool free with no ads and no paywall.

Contribution figures on this page reflect the 2026 tax year and match the rates used in the calculator. This page is educational and is not financial, tax, or legal advice — see the terms of use. For decisions with real money at stake, talk to a qualified professional who can see your whole situation.