RRSP vs TFSA: Which Should You Max Out First in 2026?

The RRSP vs TFSA debate is one of the most common questions in Canadian personal finance. We ran the numbers to show you exactly which account wins - and when.

The Quick Answer

Lower income now, higher later? TFSA first. Higher income now, lower later? RRSP first. Not sure? TFSA - it's more flexible.

But let's dig into the actual numbers.

How Each Account Works

TFSA (Tax-Free Savings Account)

Contribute with after-tax dollars
All growth is 100% tax-free
Withdrawals are tax-free
2024 contribution room: $7,000
Lifetime room (since 2009): $95,000

RRSP (Registered Retirement Savings Plan)

Contribute with pre-tax dollars (tax deduction)
Growth is tax-deferred
Withdrawals are taxed as income
2024 contribution room: 18% of previous year's income (max $31,560)

We Ran the Numbers: 5 Scenarios

Using our Investment Returns Calculator, we modelled real scenarios to see which account wins.

Scenario 1: Early Career ($50,000 Income)

Factor	RRSP	TFSA
Current marginal rate	29.65%	N/A
Tax saved on $7,000 contribution	$2,076	$0
Expected retirement income	$70,000+	N/A
Retirement marginal rate	~33%	0%

Result: At $50,000 income, you're in a relatively low tax bracket. If your income will be higher in retirement (pension, other savings), the RRSP tax deduction now is worth less than tax-free growth.

Winner: TFSA

Scenario 2: Peak Earning Years ($120,000 Income)

Factor	RRSP	TFSA
Current marginal rate	43.41%	N/A
Tax saved on $21,600 contribution	$9,377	$0
Expected retirement income	$60,000	N/A
Retirement marginal rate	~30%	0%

Result: At $120,000, you're in a high tax bracket. The 43% deduction now vs 30% tax later creates a significant arbitrage opportunity.

Winner: RRSP

Scenario 3: The $10,000 Investment Over 25 Years

We invested $10,000 in each account at 7% annual returns:

Account	Starting	After 25 Years	Tax on Withdrawal	Net Value
TFSA	$10,000	$54,274	$0	$54,274
RRSP (high earner)	$10,000 + $4,341 reinvested	$77,889	$23,367 (30%)	$54,522
RRSP (low earner)	$10,000 + $2,076 reinvested	$65,513	$19,654 (30%)	$45,859

Key insight: The RRSP only wins if you reinvest the tax refund AND withdraw at a lower rate.

Scenario 4: Emergency Fund Flexibility

Life happens. What if you need money in 5 years?

Account	Withdrawal Impact
TFSA	Withdraw tax-free, room returns next year
RRSP	Taxed as income, room lost forever

Winner: TFSA (for any funds you might need)

Scenario 5: Home Buyer's Plan

First-time home buyer? RRSPs offer the Home Buyer's Plan:

Withdraw up to $60,000 tax-free for a home
Must repay over 15 years
TFSA has no equivalent (but withdrawals are always tax-free anyway)

Analysis: HBP is useful but adds complexity. TFSA is simpler for down payment savings.

The Tax Bracket Decision Matrix

Use your current marginal tax rate to decide:

Your Income (Ontario)	Marginal Rate	Best First Choice
Under $50,000	29.65%	TFSA
$50,000 - $55,000	29.65%	TFSA (borderline)
$55,000 - $90,000	31.48%	Either / Both
$90,000 - $100,000	33.89%	RRSP
$100,000 - $150,000	43.41%	RRSP
$150,000+	46.41%+	RRSP

Check your exact tax rate

i These rates are for Ontario. Other provinces vary. The principle remains: high bracket now + low bracket later = RRSP wins.

When TFSA Always Wins

Choose TFSA first if:

You're under 30 - Income likely to rise, save RRSP room for higher brackets
You might need the money - TFSA withdrawals don't hurt you
You have a pension - OAS clawback and pension income make RRSP less attractive
Your income is under $55,000 - Tax deduction isn't worth locking up money
You're not sure - TFSA's flexibility means fewer wrong decisions

When RRSP Wins

Choose RRSP first if:

Income over $100,000 - 43%+ deduction is hard to beat
Employer matches - Free money always wins (do this first!)
You're disciplined - Will actually reinvest the tax refund
Lower retirement income expected - Withdraw at lower rate
Using Home Buyer's Plan - $60,000 tax-free for first home

The Math Behind "Reinvest Your Refund"

This is critical and often missed. An RRSP only beats a TFSA if you reinvest the tax refund.

Without reinvesting refund ($10,000 contribution, 7% return, 25 years):

RRSP: $54,274 gross → $38,000 after 30% tax
TFSA: $54,274 net

With reinvesting refund ($10,000 + $4,341 refund, same assumptions):

RRSP: $77,889 gross → $54,522 after 30% tax
TFSA: $54,274 net

The RRSP only wins by $248 - and only if you're disciplined about reinvesting.

Our Recommendation: The Hybrid Approach

For most Canadians, we suggest:

Get any employer RRSP match first - It's free money
Max TFSA - Flexibility is valuable
Then RRSP if income > $90,000 - Tax arbitrage kicks in
Keep emergency fund in TFSA - Never in RRSP

Sample Allocation at $80,000 Income

Priority	Account	Amount	Why
1st	Employer RRSP	Match amount	Free money
2nd	TFSA	$7,000	Flexibility + tax-free
3rd	RRSP	Remaining room	Tax deferral

Common Mistakes We See

Mistake 1: "I'll withdraw RRSP at a lower rate"

Many retirees have more income than expected: CPP, OAS, pension, RRSP minimums. Don't assume low retirement income.

Mistake 2: "TFSA is for saving, RRSP is for investing"

Both can hold the same investments. The name "savings account" is misleading - your TFSA should hold growth investments.

Mistake 3: "I should use my RRSP room before I lose it"

RRSP room carries forward forever. There's no rush. TFSA room also carries forward but is more limited.

Mistake 4: Forgetting about OAS clawback

RRSP withdrawals count as income and can trigger OAS clawback (15% extra tax) above $86,912 (2024). TFSA withdrawals don't.

The Bottom Line

We ran the numbers across multiple scenarios, and here's what we found:

Under $55,000 income: TFSA wins almost always
$55,000 - $90,000: Both are good, slight edge to TFSA for flexibility
Over $90,000: RRSP wins IF you reinvest the refund
Need flexibility: TFSA always

The best strategy? Max both if you can. But if you're choosing, let your tax bracket guide you.

Use our Salary Calculator to see your exact marginal rate, then make your 2026 contribution plan.

What's your strategy for 2026?