See which account wins after tax for your specific income, province, and retirement plans — side by side.
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The TFSA vs RRSP debate is one of the most common personal finance questions in Canada. The short answer: both accounts shelter investments from tax, but they do it differently — and which is better depends entirely on your tax rate now versus in retirement.
The RRSP gives you a tax deduction today (reducing this year's tax bill) but taxes withdrawals in retirement as income. The TFSA uses after-tax dollars but every dollar of growth and every withdrawal is completely tax-free forever. Both shelter investment returns from annual taxation while the money remains in the account.
RRSP is better when your tax rate at contribution is higher than your tax rate at withdrawal. If you earn $120,000 today (43% marginal rate) and retire on $50,000/year (30% marginal rate), the RRSP's deduction now and lower-rate withdrawal later is a powerful advantage.
TFSA is better when your tax rate at retirement is similar to or higher than today, or when you're in a low income year. TFSA is also better if you might need the money before retirement, if you receive income-tested benefits (OAS, GIS, child benefits) that RRSP withdrawals could claw back, or if flexibility matters to you.
A key RRSP advantage is the annual tax refund. If you contribute $7,000 to an RRSP at a 43% marginal rate, you get ~$3,000 back. Immediately investing that $3,000 refund into a TFSA each year can make the RRSP+TFSA combination significantly more powerful than TFSA alone.
This calculator uses approximate combined federal and provincial marginal tax rates for a middle-income range. Actual rates depend on your complete income picture. Retirement tax rate is estimated — use the advanced option to enter your own estimate. Not financial advice.