TFSA vs RRSP
When you start investing in Canada, you’ll hear the same advice over and over:
“Max out your TFSA.”
“Contribute to your RRSP for tax savings.”
“And if you still have extra cash, invest in a regular account.”
It sounds simple, but figuring out which account makes the most sense for your situation can get complicated. This post breaks down the three main account types, their differences, and how to prioritize them effectively.
1. TFSA (Tax-Free Savings Account) — Tax-Free Growth
Key idea: Your investment gains are completely tax-free.
- All interest, dividends, and capital gains earned inside a TFSA are not taxed.
- You can withdraw anytime, and any amount withdrawn can be re-contributed in the following year.
- As of 2025, the annual contribution limit is CAD 7,000, with a total cumulative limit of about CAD 95,000.
Best suited for:
- Canadians in lower or moderate income brackets
- Those saving for short- or medium-term goals (like a home down payment, travel, or emergency fund)
- Anyone who wants flexibility without worrying about tax reporting
For most Canadians, starting with a TFSA is the smartest move.
2. RRSP (Registered Retirement Savings Plan) — Tax-Deferred Retirement Savings
Key idea: You get a tax deduction now, and pay tax later when you withdraw.
- Your contributions reduce your taxable income — you can get a refund when you file your taxes.
- Withdrawals are taxed when you retire, but since your income will likely be lower, you’ll pay less tax overall.
- For 2025, the maximum annual contribution limit is CAD 32,490 (or 18% of your previous year’s income, whichever is lower).
- You can withdraw temporarily tax-free under the Home Buyers’ Plan or Lifelong Learning Plan.
Best suited for:
- High-income earners looking to reduce taxable income
- People expecting a lower income after retirement
- Long-term investors focused on building retirement savings
If you’re in a high tax bracket, using the RRSP strategically can help you save tax now and withdraw at a lower rate later.
3. Non-Registered Account — No Tax Advantage, but Maximum Flexibility
Key idea: No contribution limits, but you pay tax on investment income each year.
- There are no limits on how much you can invest.
- However, all investment income is taxable:
- Interest income: 100% taxable
- Canadian dividends: eligible for a dividend tax credit
- Capital gains: only 50% is taxable
- You can deposit or withdraw anytime, without restrictions.
Best suited for:
- Investors who have already maxed out their TFSA and RRSP
- Those who want full flexibility or trade actively
- Corporations or self-employed investors managing surplus funds
4. Which One Should You Use First?
| Priority | Account Type | Why |
|---|---|---|
| 1 | TFSA | Tax-free, flexible, and accessible anytime |
| 2 | RRSP | Tax refund now, retirement savings later |
| 3 | Non-Registered | For additional investing once other accounts are full |
5. Practical Examples
- Annual income under CAD 60,000: Start with your TFSA.
- Annual income above CAD 100,000: Use RRSP for tax savings, then TFSA for flexibility.
- Both accounts maxed out: Use a Non-Registered account for ETFs or dividend stocks.
Final Thoughts
The TFSA gives you flexibility today.
The RRSP provides tax relief for tomorrow.
And the Non-Registered account offers freedom beyond both.
There’s no single right answer — the best mix depends on your income, tax rate, and retirement goals.
What truly matters isn’t which account you use, but whether you stay consistent, invest regularly, and let time work in your favor.
Canadian Investors Blog 
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