RRSP or TFSA: which should you fill first?
A plain-language framework for deciding where your next savings dollar should go — built around your marginal tax rate, not rules of thumb.
Both accounts shelter your investment growth from tax. The difference is when you get the break — and that timing is the whole decision.
The one-line difference
- RRSP: you deduct contributions now, and pay tax when you withdraw later.
- TFSA: you contribute after-tax dollars now, and withdraw tax-free later.
So the question isn't "which is better" — it's "is my tax rate higher today or in retirement?"
A simple rule that usually holds
- If your marginal rate is high now and will be lower in retirement, lean RRSP — you deduct at the high rate and withdraw at the low one.
- If your rate is low now (early career, lower-income year), lean TFSA — the deduction isn't worth much yet, and you keep the room flexible.
- Either way, grab any employer RRSP match first. That's a guaranteed return no tax strategy beats.
The match is free money. Before optimizing anything else, contribute enough to capture every matched dollar your employer offers.
Don't forget withdrawals behave differently
TFSA withdrawals don't count as income, so they won't claw back income-tested benefits like OAS or the GIS. RRSP/RRIF withdrawals do. For some retirees that makes the TFSA quietly the more valuable account, dollar for dollar.
To see roughly what tax bracket you're contributing from today, check your take-home pay and marginal rate. And when you're ready to size the target, the retirement calculator turns it into a number.