TFSA vs RRSP: where should your investments go?
Updated October 2026 · 6-minute read
Both the TFSA and the RRSP shelter your investments from tax. The difference is when the tax shows up — and that single difference decides which account fits your situation.
The one-sentence version
TFSA: contributions come from after-tax money; growth and withdrawals are completely tax-free. RRSP: contributions reduce your taxable income today; every dollar withdrawn later — including all the growth — is taxed as regular income.
Side by side
| TFSA | RRSP | |
|---|---|---|
| Tax on contributions | No deduction | Deducts from taxable income |
| Tax on growth | None, ever | Deferred |
| Tax on withdrawal | None | Taxed as income |
| Withdrawal affects room | No — room returns next Jan 1 | Yes — room is gone forever |
| 2026 contribution room | $7,000 (+ unused room from 2009) | 18% of last year's earned income (capped) |
| U.S. dividends | Taxed 15% by the U.S. inside the account | Usually not (treaty-exempt) |
A simple decision framework
You expect to earn more later in your career than you do now? TFSA first. Deducting RRSP contributions when you're in a low tax bracket wastes the deduction — you'd get a bigger benefit saving it for a higher-earning year.
You're in your peak earning years? RRSP first. The deduction is worth the most at high marginal rates, and you'll likely withdraw in retirement at a lower rate.
You might need the money before retirement? TFSA. Withdrawals are tax-free, penalty-free, and the room comes back. RRSP withdrawals are added to your income and the room never returns.
Your investments are U.S. stocks/ETFs? RRSP has a small edge: the U.S. withholds 15% on dividends paid into a TFSA but generally not from an RRSP. For Canadian stocks, funds, and GICs this doesn't matter.
Max out both? That's the actual right answer for many mid-career savers — and it's not a coincidence that financial advisors keep saying it.
Three myths worth killing
"TFSAs are just savings accounts." A TFSA is a wrapper, not an investment. It can hold stocks, ETFs, GICs, or cash. Holding a life savings' worth of GIC interest rates inside a tax-free wrapper is the most common (and expensive) TFSA mistake.
"RRSPs are bad because you pay tax later." You pay tax on withdrawals, yes — but the deferral itself is powerful: money that would have gone to CRA this year stays invested and compounds for decades.
"Contribution room resets if I don't use it." Both accounts carry unused room forward forever. Check your CRA My Account for both numbers before contributing anything.
The 30-second answer
Low tax bracket and possible early withdrawal → TFSA. High tax bracket and money you won't touch until retirement → RRSP. Middle of the road → often TFSA first, RRSP as income rises — and if you can max both, do both.
Try the numbers yourself with our compound interest calculator, or see dividend investing in Canada for what to actually hold.
Disclaimer: General information, not tax or investment advice. Tax rules change; contribution figures should be confirmed with the CRA and a qualified professional. Not affiliated with the CRA or any financial institution.