RRSP vs. TFSA: Which is Better for Your Retirement Savings?

If you’re saving for retirement in Canada, you’ve probably heard these two acronyms over and over: RRSP and TFSA. They’re the main vehicles Canadians use to grow their money tax-efficiently. But they work in very different ways, and choosing between them—or knowing how to use both—can be the difference between a decent retirement and a financially secure one.

Here’s a closer look at how they work, where they shine, and how to decide what’s right for your situation.

What is an RRSP?

The registered retirement savings plan (RRSP) is a tax-deferred account designed specifically for retirement savings.¹ Contributions are deducted from your taxable income in the year you make them, which can reduce your income tax. Your investments grow tax-free inside the account, but you’ll pay tax when you withdraw the money in retirement.

With an RRSP, you get a tax break now and defer taxes until later, ideally when you’re in a lower tax bracket.

An RRSP could be suitable for:

High earners today expect a lower income in retirement.
Long-term retirement-focused savings.
People who are disciplined enough to leave the money untouched until they need it in retirement.

What is a TFSA?

The tax-free savings account (TFSA) is a registered account allowing your money to grow tax-free.² But the main difference is that you contribute with after-tax dollars, so there’s no upfront tax break. The upside? No matter how much it’s grown, you don’t pay any tax when you withdraw the money.

With a TFSA, you don’t get a deduction when you contribute, but your money grows tax-free, and withdrawals are not counted as income.

A TFSA could be suitable for:

People with lower incomes today.
Anyone who values flexibility with their savings.
Those looking to avoid affecting government benefits down the line.

Key Differences Between RRSP and TFSA

Here are some of the key differences between an RRSP and a TFSA:

How Contributions are Taxed

With an RRSP, contributions are tax-deductible and reduce your taxable income. With a TFSA, contributions are not tax-deductible, and you use after-tax income.

How Withdrawals Are Taxed

With an RRSP, withdrawals are taxed as regular income. With a TFSA, withdrawals are completely tax-free and don’t count as income.

Contribution Limits

For an RRSP, you can contribute up to 18 percent of your earned income from the previous year up to a maximum set by the government (e.g., $32,490 in 2025).³ With a TFSA, you can contribute a set amount each year (e.g., $7,000 in 2025), regardless of income.⁴ Unused room carries forward.

Age Limits

An RRSP must be converted to a RRIF or annuity by the end of the year you turn 71.⁵ There is no age limit for a TFSA, as long as you’re 18 or older and a Canadian resident.

Effect on Government Benefits (Like GIS or OAS)

RRSP withdrawals count as income and can reduce eligibility for income-based benefits like GIS or OAS. TFSA withdrawals are not counted as income and won’t affect benefits.

Withdrawal Flexibility

RRSP withdrawals are permanent and reduce your contribution room, while TFSA withdrawals can be re-contributed to a future year without penalty.

Which One Is Better for Retirement?

The right account depends on your current income and your expectations for the future.

You may consider choosing an RRSP if:

You’re in a higher tax bracket now and expect to be in a lower one in retirement.
You want to reduce your income taxes today.
You’re focused solely on long-term savings and don’t need access to the money anytime soon.

You may consider choosing a TFSA if:

You’re in a lower tax bracket today (ex, early in your career or semi-retired).
You want flexibility and to take money out anytime without penalty.
You’re concerned about government benefit clawbacks and want to avoid reducing income-based benefits.

Why Not Use Both?

You don’t need to choose either-or. The smartest strategy is often a mix, such as using your RRSP for long-term, tax-deferred retirement savings, and your TFSA for mid-term goals and retirement flexibility.

For example, in retirement, you might withdraw from your RRSP to the edge of your tax bracket and use TFSA withdrawals to top up your income without triggering extra tax.

RRSPs and TFSAs are both excellent tools for saving money, but they serve different purposes and suit different stages of life. The best choice depends on your current income, your future goals, and how much flexibility you want with your savings.

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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Ivy Pierson, CEP, MBA Investment Advisor Representative Securities and advisory services offered through Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency LLC), member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Pierson Wealth Management is located at 28368 Constellation Rd., Ste. 396, Santa Clarita, CA 91355. CA Insurance Lic#0C92500. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful