TFSA vs RRSP in plain numbers
One $5,000 paycheque, two accounts, three tax rates. The choice comes down to a single comparison.
Most TFSA-versus-RRSP debates are louder than they need to be. In arithmetic terms, both accounts shelter growth from tax. The difference is when you pay tax on the money going in, and at what rate.
The two accounts in one sentence each
RRSP: contributions are deductible now, growth is sheltered, and every dollar withdrawn later is taxed as income. TFSA: contributions come from money already taxed, growth is sheltered, and withdrawals are tax-free.
The experiment
Take $5,000 of employment income. Assume the investment exactly doubles before you withdraw it, and assume a flat 30% tax rate. These numbers are illustrative; your real marginal rate depends on your province and income.
| Step | TFSA | RRSP |
|---|---|---|
| Pre-tax income | $5,000 | $5,000 |
| Tax paid today | −$1,500 | $0 (deducted) |
| Amount invested | $3,500 | $5,000 |
| After the investment doubles | $7,000 | $10,000 |
| Tax on withdrawal | $0 | −$3,000 |
| You keep | $7,000 | $7,000 |
Identical. When the tax rate is the same at both ends, the two accounts produce the same result. That is the core idea; everything else is a variation.
Change only the withdrawal rate
| Rate when you withdraw | TFSA | RRSP | Edge |
|---|---|---|---|
| 20% (lower later) | $7,000 | $8,000 | RRSP |
| 30% (same) | $7,000 | $7,000 | Even |
| 40% (higher later) | $7,000 | $6,000 | TFSA |
So the question is not “which account is better?” but “is my tax rate higher now, or will it be higher when I take the money out?” People in their peak earning years who expect a lower income in retirement tend to favour the RRSP. People early in their careers, on a lower income today, often favour the TFSA.
The fine print behind the table
- The RRSP only matches if you invest the refund. In real life the RRSP deduction usually arrives as a tax refund. In the table, the RRSP column assumes that refund is invested too. If it is spent, the RRSP's advantage shrinks.
- RRSP room is earned; TFSA room is given. New RRSP room each year is 18% of your previous year's earned income, up to a dollar limit: $33,810 for 2026 and $35,390 for 2027, minus any pension adjustment. TFSA room is a flat amount for every eligible adult ($7,000 in 2026).
- Withdrawals behave differently. TFSA withdrawals come back as new room the following January 1. Ordinary RRSP withdrawals do not restore RRSP room. That makes the TFSA the more flexible account for money you might need before retirement.
- Tax is withheld on RRSP withdrawals. For residents outside Quebec, the institution withholds 10% on amounts up to $5,000, 20% from $5,000 to $15,000, and 30% above that. Withholding is a prepayment, not the final bill; the withdrawal is added to your income for the year.
- Over-contribution rules differ. The RRSP tolerates up to $2,000 over your deduction limit before a 1%-per-month tax applies. The TFSA has no cushion.
Dates that matter this season
For the 2026 tax year, RRSP contributions made up to Monday, March 1, 2027, the 60th day of the year, can be deducted on your 2026 return, within your deduction limit. New TFSA room for 2027 arrives on January 1, 2027; the CRA has not yet announced the 2027 TFSA dollar limit. All the dates are in Key dates for the 2027 tax season.
A sensible order of operations
This is not a rule, only a common way to think it through. First, capture any employer RRSP or pension match; it is an immediate return that neither account can beat on its own. Then compare your tax rate today with your best estimate of your rate at withdrawal. If today's rate is clearly higher, lean RRSP. If it is lower or uncertain, or you may need the money sooner, lean TFSA. Many households use both. If you are saving for a first home, the FHSA usually comes before either.
If you are weighing the choice alongside government benefits, a pension, or a first-home purchase, the details can change the answer, and a fee-only planner or tax professional is worth the hour.
Noted.
Sources
Figures in this note were checked against these sources on the date shown above.
This note is general education, not personal financial, tax or legal advice. Rules and figures change; confirm with the source and, where needed, a qualified professional. Terms are defined in the glossary.
