RRSP vs TFSA: which to fund first

Fund the RRSP first if your tax rate when you withdraw will be lower than your rate today. Fund the TFSA first if it won’t. In 2026 you can contribute up to C$33,810 to an RRSP (18% of last year’s earned income, up to that cap) and C$7,000 to a TFSA, plus unused room in both. Most people with a moderate or high income and no workplace pension should use both, in an order set by their tax bracket.

The one rule that decides it

An RRSP gives you a deduction now and taxes the money when it comes out. A TFSA gives you nothing now and never taxes it again. If the tax rate is the same at both ends, the two give you exactly the same amount to spend, as long as you invest the RRSP refund.

Everything else is detail on that rule. The questions that move it:

• What’s your bracket now? Federal rates for 2026 are 14% up to C$58,523 of taxable income, 20.5% to C$117,045, 26% to C$181,440, 29% to C$258,482 and 33% above, plus provincial tax. A C$10,000 RRSP deduction for someone at C$100,000 saves C$2,050 federally. For someone at C$45,000 it saves C$1,400.
• What will your income be in retirement? Add up the workplace pension, CPP, OAS and RRIF withdrawals you expect. A generous defined benefit pension can leave you in the same bracket in retirement as today, which takes most of the RRSP’s edge away.
• Will you depend on income-tested benefits? RRSP and RRIF withdrawals count as income. The CRA says TFSA income and withdrawals don’t affect Old Age Security, the Guaranteed Income Supplement, the Canada child benefit or the GST credit. For anyone who expects a modest retirement income, that can matter more than the deduction.

Rules that matter

1. RRSP room comes from earned income. It’s 18% of the previous year’s earned income up to the yearly cap (C$33,810 for 2026, C$35,390 for 2027), minus any pension adjustment if you’re in a workplace pension. Your notice of assessment shows the number.
2. TFSA room comes from age and residence. It builds from the year you turn 18 as a Canadian resident, whatever you earn. Withdrawals are added back on January 1 of the next year.
3. RRSP withdrawals are withheld at source. Outside Quebec, the bank holds back 10% on amounts up to C$5,000, 20% on C$5,000 to C$15,000, and 30% above. That’s a prepayment. The full amount is added to your income and taxed at your real rate in April.
4. Room you withdraw from an RRSP doesn’t come back. Because room is built only from earned income, taking money out early, outside the Home Buyers’ Plan and similar programs, uses room for good. A TFSA withdrawal restores the room the next year.
5. You can contribute now and deduct later. RRSP contributions you don’t deduct this year carry forward. If you expect a raise, you can put the money in today and take the deduction in a higher-bracket year.
6. Contributions in the first 60 days of a year can count for the year before. Contributions made in early 2027 can be deducted on your 2026 return.

If you’re saving for a first home, the FHSA gives you a deduction going in and a tax-free withdrawal for the purchase, which beats both for that money. The Home Buyers’ Plan lets you borrow from an RRSP and repay it.

Common mistakes

• Spending the RRSP refund. If the refund goes to a holiday, the RRSP is a C$7,000 contribution pretending to be C$10,000, and the TFSA would have done better at the same tax rate.
• Contributing to an RRSP in the lowest bracket. At 14% federally, the deduction is small, and you may withdraw at a higher rate later. A TFSA, or saving RRSP room for higher-income years, is often better early in a career.
• Building a large RRSP with no plan to draw it down. It must become a RRIF by the end of the year you turn 71, with minimum withdrawals that can push you into the OAS clawback. Our guide to RRIF withdrawal planning covers this, and the RRSP meltdown guide covers drawing it down early.
• Putting a TFSA withdrawal back the same year. Without new room, that’s an overcontribution, taxed at 1% a month.
• Ignoring a spouse. If one partner will have much more retirement income than the other, a spousal RRSP can even it out. See our guide to spousal RRSPs.

Questions to ask a planner

1. What tax rate do you expect me to pay on RRSP and RRIF withdrawals, and how did you work it out?
2. Should I contribute to my RRSP now but delay the deduction?
3. How does my workplace pension change the answer?
4. Will my retirement income put OAS or the GIS at risk?
5. Which account should hold which investments?
6. Do you or your firm earn anything from the accounts or products you recommend?

When a fee-only planner is worth it

You don’t need a planner to open a TFSA. You might want one when the answer depends on a projection: a workplace pension, a big gap between partners’ incomes, a business, or a retirement date within ten years. The value is in the tax rate estimate, and that takes a retirement income model, not a rule of thumb.

In Canada, advice-only planners who publish prices charge a median C$1,900 for a one-time plan (middle half C$950 to C$3,000), C$250 an hour, or C$2,300 a year for ongoing planning. The samples are small: 46 firms for plans, 15 for hourly rates and 21 for ongoing planning, so get two quotes. A one-time plan that moves C$20,000 a year from the wrong account to the right one can pay for itself within a few years. Our guides to what fee-only advisors charge in Canada and advice-only planning explain what you get.

One tax point: the CRA doesn’t let you deduct fees for services connected to an RRSP or TFSA as carrying charges, so don’t count on a deduction for this kind of advice.

Find a planner

Browse fee-only planners by province in the public graph: Ontario, British Columbia, Alberta, Quebec, Manitoba, Saskatchewan and Nova Scotia, or see the list of fee-only advisors in Ontario. If you’ve lived or worked in the US, read about cross-border advisors first, because the US doesn’t treat a TFSA as tax-free for its citizens and residents.