TFSA vs. RRSP: How to Choose

Tax-free savings accounts (TFSAs) and registered retirement savings plans (RRSPs) are both registered accounts that you can use to save money and get tax advantages.

You can use both RRSPs and TFSAs to save for your future; you don’t need to choose between them.

However, each registered account has different rules about contributions, withdrawals and taxes. It’s important to understand which account will help you most effectively reach your savings goals, especially if you have limited funds.

How a TFSA works

A TFSA can be used to save for anything you want. You can withdraw your funds anytime, and there’s no requirement to replace them.

TFSA contributions are not tax-deductible. However, you won't pay taxes on the interest or investment income earned within the account. TFSA withdrawals are tax-free.

How an RRSP works

An RRSP is a tax-deferred account specifically designed for your retirement.

RRSP contributions are tax-deductible. You won’t pay taxes on any investment earnings or interest earned while the funds stay within your RRSP. But you will pay income tax on the amounts you withdraw in retirement.

One key benefit of RRSPs is that some employers offer RRSP matching programs, through which they “match” your contributions to your account up to a certain amount or percentage of your salary. This additional “free money” can further maximize the benefits of an RRSP by leading to larger compounding returns.

TFSA vs. RRSP similarities and differences

Knowing how TFSAs and RRSPs compare to one another can help you understand how you can benefit from them.

Uses

You can choose to withdraw money at any time from a TFSA for any reason, such as purchases, travel or emergencies. There’s no requirement or timeline to replace the funds. You can also invest in a TFSA each year and leave your savings alone to earn compound interest tax-free to help fund your retirement.

RRSPs are designed for retirement savings. Two exceptions are the Home Buyers’ Plan and Lifelong Learning Plan, which you can use to pay for your first home or education expenses. However, both programs require you to repay the money within a specified time frame.

Eligibility

To open a TFSA, you need to be a resident of Canada for tax purposes, be at least 18 years old and have a Social Insurance Number (SIN).

To start an RRSP, you must be less than 71 years old, be a Canadian resident, earn an income and file a tax return.

Contribution limits

Both TFSAs and RRSPs have contribution limits, or a maximum amount you can contribute each year. If you contribute more than these limits, you’ll face penalties and fees.

For a TFSA, there is a set annual contribution limit — in 2026, it’s $7,000. That amount is added to any unused contribution room you have from previous years. Your contribution room starts accumulating when you turn 18 or in 2009, whichever is more recent — even if you haven’t opened a TFSA yet. If you’re a newcomer to Canada, your contribution room starts accumulating in the year you become a resident.

The RRSP contribution limit is 18% of your earned income from the previous year, up to a maximum set by the CRA each year, plus any unused contributions from past years. For the 2025 tax year, the maximum RRSP contribution limit is $32,490. For 2026, it’s 33,810.

Contributing the maximum amount allowed each year is known as “maxing out” your RRSP or TFSA. If you're unable to max out your contributions for either of these accounts in a particular year, that’s OK. In both cases, the contribution room carries forward to the following years.

Withdrawals

When you withdraw from your TFSA, you get that contribution room back the following year.

However, once you withdraw funds from your RRSP, you lose that contribution room and the potential for compound growth that comes with it. Plus, you’ll have to pay a withholding tax on the amount withdrawn. This is one reason why it’s best to leave money in your RRSP until retirement.

However, eligible withdrawals under the Home Buyers’ Plan and Lifelong Learning Plan are not subject to the withholding tax. Because you must repay the amount you withdraw, these plans are more like a loan to yourself than a true withdrawal. You must also use the funds for specific qualifying expenses.

Taxes

Both types of accounts shelter interest and investment income from tax.

TFSA contributions are not tax-deductible, but withdrawals from a TFSA are tax-free.

RRSP contributions are tax-deductible, but RRSP withdrawals are taxable. They are taxed at your annual marginal tax rate. Plus, you’ll pay a withholding tax for any lump sum withdrawn from your RRSP.

Time limits

TFSAs have no time limits; you can use them as long as you like.

For RRSPs, you can contribute until December 31 of the year in which you turn 71. After this point, you must transfer the funds to a registered retirement income fund (RRIF) or an annuity. You can also withdraw the entire amount in a lump sum, but that may result in a hefty withholding tax.

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How do I choose between a TFSA vs. RRSP?

Choosing between a TFSA and an RRSP depends on your financial goals and situation. You might also consider opening both types of accounts to save for multiple goals at once. Before making a decision, consider factors such as:

If you aren’t sure whether a TFSA or RRSP is right for your needs, it might be worth considering other RSP options or consulting a professional financial advisor.