TFSA vs RRSP: Head to Head Comparison


There has been a lot of talk about which one is better, the TFSA vs RRSP in both the PF blogosphere and the media.  Both are great tools for saving for us Canadians.  Given that it’s a fresh year (and almost time the RRSP contribution deadline for 2011- March 1, in case you forgot), more people are thinking about the TFSA and the RRSP.

In an ideal world, one could max out both the RRSP and the TFSA.  That would be ideal. Though in the real world, life happens, and it is oftentimes very difficult to be able to scrounge up the money (without having to sell a kidney on the black market-kidding!) to be able to max out both the RRSP and the TFSA.

In my opinion, the RRSP and the TFSA are like siblings. Very different siblings. Almost mirror opposites and the inverse of each other. They both compete for your money and attention.  They are both good, but as we all know, one can be better for you than the other, just like parents really do have a preference of one sibling over the other, but they just don’t say it aloud (uh oh, is my middle child syndrome coming out in my post?!  Sorry about that).

So let’s talk about the RRSP first (the older sibling):

The Basic Lowdown on the RRSP:

  • The RRSP was introduced in 1957 (yeah, it’s the really old sibling)
  • As detailed in my RRSP post, the RRSP can hold a number of things (including GIC’s, stocks, mutual funds, bonds); it’s like a basket of investments sheltered from tax
  • Contributing to the RRSP is with PRE-TAX income (the tax refund you get is your pre-tax money, but given to back to you at a later date)
  • You will have to pay tax eventually when you take money out of it- it’s a tax deferral program (the hope is that when you take money OUT of the RRSP, you’ll be low income aka retired, so there won’t be as much income)
  • You are supposed to contribute to it to reap the tax deductions when you’re at a higher tax bracket, and take it out when you are at a lower tax bracket.
  • There are two options where you are allowed to borrow money from your own RRSP: 1) Home Buyers Plan and 2) Lifelong Learning Plan (with both you are expected to pay back 1/15 and 1/10 respectively, of the amount you borrowed per year until its fully paid)

The Lowdown on the TFSA:

    • People could first contribute to a TFSA in 2009 (this is the new baby sibling, becoming ever popular)
    • Each year after the age of 18, you can contribute to $5000 per year to a TFSA
    • Currently in 2011, if you haven’t opened a TFSA before, you can contribute up to $15,000
    • Like an RRSP, you can hold a number of things. The TFSA is like a basket of investments (GIC’s, High Interest Savings Accounts, stocks, bonds etc.)
    • Money contributed to it is AFTER TAX income, but you can take out money that has been compounding in the TFSA TAX FREE.
    • You can take out the money any time– tax free
    • You have to wait until the next year to contribute back to it, otherwise you will be dinged A LOT.
    • Many people have been using the TFSA as an emergency fund, but with the increasing amount allowed ($15,000) I think people should be looking at other options for their TFSA- like my personal favourite, the Tax Free Trading Account

Do you see what I mean about them being the inverse of each other? RRSP= pre-tax dollars invested, taxed when you withdraw; and TFSA= after tax dollars invested; no tax when you withdraw.  Now that we’ve introduced the siblings, lets look at their good and bad traits.

PROS of the RRSP:

  • It feels awesome to get that tax return.  Especially when you use that tax return to contribute to your RRSP again for the following year.
  • Like Jim Yih (a fee only advisor and best selling author and financial speaker on wealth), I agree that RRSPs are great in that you are forced not to want to withdraw from it (other than for school or for a first time home purchase)… because we all know that we all have sticky fingers and it’s hard not to take from the cookie jar!
  • Hence, it’s a great way to develop disciplined investing into your RRSP
  • It’s a good tool for those with high incomes who are taxed to the nines.  It can feel good to get some of your tax dollars back.
  • You can hold USD stocks in it- great for big dividend payers stocks like Coca Cola, Johnson and Johnson etc. Because if these stocks are held OUTSIDE of an RRSP, you would have to pay hefty taxes on it because foreign income is treated like interest income- taxed at your marginal rate (e.g. if you paid 40% income tax, you would pay 40% tax on your dividend income from Coca Cola)

CONS of the RRSP:

  • It’s a tax deferral… if you have a great pension, you will be taxed to the nines when you are in retirement, especially when you are forced to take your RRSP out, little by little each year.
  • You can’t take money out except for buying a home (first time or very long time since you’ve bought a home) or for education for you or your spouse (up to the age of 71)
  • If you aren’t making much money that year (e.g. if you are a student) there isn’t too much point in taking a deduction for the RRSP.  You already aren’t taxed that much, so you wont’ get much of your taxes paid back.
  • The Home Buyer’s Plan and Lifelong Learning Plan are great, but the money you pay back to your RRSP isn’t tax deductible.

Now let’s look at the hotter younger sibling, the TFSA

PROS of the TFSA:

  • Everyone gets the same amount- so it could be more equitable that way.  Everyone can contribute $5000 starting from the age of 18.
  • So, theoretically if I contributed $5000 to a TFSA until I was 65 and had zero returns (which is highly unlikely) on my investments, I would still have a little over $200,000 in the bank.  Tax Free.
  • It is easy to get your money out
  • You are rewarded for investing smart.
  • If you invested really well and made $4000 on top of your $5000 contribution, and you withdraw $9000, you can contribute $9000 back the following year instead of $5000 (Balance Junkie proves this is true by calling up CRA to double check)

CONS of the TFSA:

  • The problem is that it is being heavily marketed as a Tax Free High Interest Savings Account by all the big banks.  You get 2% interest if you’re lucky, and as we all know this barely keeps up with inflation (this is understandable because with such little amount able to invest, the banks don’t want to waste their money or time if you have so little to invest with them- that’s my two cents anyways)
  • With little contribution room available ($15,000 so far), it might not be feasible to invest in equities or trade very often, because this eats away at your contribution room ($29 a trade can really add up).
  • It’s very easy to take money out (it’s both a pro and a con) so being able to save for something long term (like retirement) will be difficult, what with our natural tendency towards instant gratification

Youngandthrifty’s Take:

Personally, I am trying to contribute to both.  I don’t have very much money that I am allowed to contribute towards an RRSP anyway because of the Pension Adjustment, so a little tax refund is always nice to offset some things like capital gains, interest income etc., otherwise I might be paying more taxes when I’ve already paid so much in taxes from my primary source of income.

I do like that the RRSP allows you to contribute USD.  I do like that with the TFSA, it can be used as a short term mode of investing and saving.  I like them both, for different reasons.

I would recommend that for those who are not taxed to the nines yet (like students, new grads, young adults etc.), it is better to contribute to a TFSA.  The TFSA would be better for short term goals (within 1-10 years), like saving for a down payment, saving for a car, saving for that future baby, or saving for that big trip.  The TFSA (younger sibling) is great for those short term goals. If you are able to invest well with the TFSA, those goals can become reality that much sooner.  However, just as we can’t ignore the wiser, older sibling, we must not forget about the RRSP. We need to make sure we have enough to retire on too.  Because compound interest and TIME is on your side (because we’re young!), once you start making some money, I would sock some money away at an RRSP for now.  It’s hard to play catch up when you’re saving for retirement.

However, for the 32% of us that have a big pension to retire on, I would mainly recommend the TFSA.  With $200,000 available to be withdrawn tax free and a pension, there should be enough money available for a comfortable retirement.  That is unless can’t resist dipping into the cookie jar before then!

Of course, everyone is different and would have a different reason for having one or the other as a better option for their situation.  It’s best to sit down and really think about the merits of each option to figure out which one you want to allocate the majority of your hard earned money to.

Readers, what do you think? What are your thoughts between TFSA vs RRSP?  Are you planning to contribute to both?  If you had to pick one, which would you choose?


Young is a writer and former owner of Young and Thrifty and the main "twitter' behind Young and Thrifty's twitter account. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals. If you like what you read, consider signing up for email updates.

71 Responses to TFSA vs RRSP: Head to Head Comparison

  1. TFSA – we have pensions as well. Though we WILL max those out pretty soon leaving us with the option of non registered accts or RRSP at which time we’ll gladly invest in the RRSP as our salaries are starting to get to a point where our tax rate is going up too often.

    • @Sustainable PF- Hey, that’s a nice problem to have!! :) It’s like a bittersweet accomplishment, heading to the next tax bracket.

  2. I can’t think of many situations where contributing to an RRSP is favorable to a TFSA.

    The trouble I have with RRSPs is that I am speculating on what my tax rate might be 30-40 years from now. I haven’t a clue what my tax rate will be.. as such, I don’t feel compelled to try to max
    it out.

    For that matter, I actually hope to be paying the same or more taxes in my old age – that would mean I’ve got some sustained income.. so deferring the taxes could be a big mistake!

    • RRSP is pre tax.
      TFSA is post tax..

      This means depending on ur tax bracket RRSP allows u to invest 30% more in comparison to TFSA.

      5000 in TFSA becomes 13,266.49 in 20 years at 5% compounding annually
      8000 in RRSP becomes 21,226.38 in 20 years at 5% compounding annually

      Lets say tax rate increases to 35% when u retire (highly unlikely due to lower income during retirement but i will take ur argument on this one) 65% of 21,226.3 comes to 13797. So u are up ~500$ using RRSP.

      Compound that by year on year investment and it could be significant amount

      • Your math is wrong. 8000 of gross income equal 5600 of net at 30%. 5000 is a marginal tax rate of 37.5%.

        8000 / 5600 works out to 14,858.

        Regardless of the exact numbers, the tax and compounding effects are commutative – it doesn’t matter when the tax is taken out, only the rate at which it is taxed. If the tax rate is the same, you’ll end up with the same amount of money at the end with either TFSA or RRSP – the tiebreaker is the income-tested benefits and RRIF effects on average withdrawn tax rate.

  3. Good post Y&T.

    I do disagree with one thing: “You can’t take money out except for buying a home (first time or very long time since you’ve bought a home) or for education for you or your spouse (up to the age of 71).”

    Not true. You can withdraw from your RRSP, you’ll simply pay taxes on what you withdraw at your marginal tax rate. I know a few folks who have “cashed in” their RRSPs for emergencies. Not preferred but life happens.

    Also, another pro of RRSPs, you can set up a spousal RRSP. Not so for TFSAs. The more taxable income you have, the higher your tax bracket. You should, therefore, consider allocating future taxable income as evenly as possible between you and your spouse or common- law partner; “income-splitting”. The long-term advantage? When you both withdraw from your RRSP savings during retirement, the combined income tax you pay as a couple may be lower than what you would pay if all your savings were in a single RRSP. Makes sense for situations where one partner would otherwise have little retirement savings.

    All that said, I’m a fan of both, RRSPs and TFSAs. Both products can be used effectively but decades from now, the TFSA will certainly win out for all the reasons above and more.

    In my old age, I’d love to have a tax problem. That means I have no income concerns :)

    • @My Own Advisor- Oops- yes, thanks for the clarification. I was being too “absolute” with the RRSP- yes you can cash them out anytime but you will pay major tax for it- agree that its not preferable, but it is an option. Thanks for your additional tips (re: spousal RRSPs… I haven’t gotten a chance to look closely at that yet since I’m not a spouse yet :) )

  4. TFSA 100% before RRSP.
    RRSP you have to take funds out even if you have other revenue sources.. thus putting you in high tax brackets. Taxes are not likely to go down with the economy.
    I would def. max out TFSA before putting money in RRSP.
    TFSA your gains are not taxable, ever!

  5. Thanks for the mention. I really appreciate it. I like the siblings analogy. I’m not sure why their is such a surge of anti-RRSPers out there this year.

    As you said, they are both good but for really different reasons. People who overgeneralize the tax consequences at the back end may not be cutting the RRSP short.

    These accounts are not mutually exclusive. you do not have to buy one without the other. You can actually do both.


  6. I agree, both can be a good option because you can withdraw from your TFSA in retirement to keep your retirement income low and also withdraw a little bit from your RRSP at a low marginal tax rate. That’s pretty win-win.

    If you have a pension that will increase your income substantially every year, then TFSA would be the clear winner.

    • @SavingMentor- Definitely win-win, but there would have to be a clear distinction from which funds are for retirement in the TFSA, because it’s just way too easy to dip into the cookie jar when things are so easily accessible.

  7. Great post YT!
    Personally they both have their advantages. I borrowed for an RRSP yrs ago, paid it off and used the RRSP as my HBP, for my first home about two yrs ago.

    I was thinking of getting into an TFSA. I just don’t find it feasable at the moment to invest, as I am eliminating debt. I may convernt some savings and bring them over to the TFSA.

    Eitherway great post, well explained. Look for the feature in “Fox’s Weekend Blog Love”


    • @Fox- Thanks Fox (for the love). I would definitely get into a TFSA (especially since we’re both young). You could definitely convert some savings into a TFSA- because at the non-registered savings rate, you are basically paying for inflation AND you get taxed on the interest income.

    • @Invest It Wisely- yes, thanks for mentioning the RRSP match (those good ol’ employers!) That is definitely a win-win scenario.

  8. My strategy this year is to max out RRSP contributions as much as possible and take the tax refunds and put it in TFSA. My reasoning is that who knows what the tax regime will be like in 30 years when I retire. Bear in mind, our country’s finance needs to survive the boomer seniors first. I suspect there won’t be enough money and they’ll encourage seniors to use up their nest egg by taxing it less. Lowering taxes on seniors will be popular and given they of all the various demographic groups is the one most likely to vote, makes political sense as well.

    I contribute to RRSP to get my money back from the gov now and put it somewhere where they can’t get at it, unless they change TFSA rules. Basically, the government is betting on the uncertain future and lending you the money. Might as well take it.

    • @Andy- Excellent strategy. That’s what I plan to do too. Then it’s like a win-win-win situation! Good point that the tax regime will likely look very different 30 years down the road.

  9. Wow. You really covered a lot of ground here. Nice job. I’ve written a lot about the benefits of TFSAs and I do think most Canadians aren’t using them enough yet. But I would never say that they are better or worse than RRSPs. It really depends on your personal situation.

    We will continue to use both, but will probably top up our TFSAs first and then contribute to RRSPs. That’s because we already have a decent amount in RRSPs and we want to allow our TFSA savings to catch up a little. (Thanks for the mention! :))

    • @Balance Junkie- Thanks for visiting! :) You could do what Andy suggests, which is to use your RRSP refund (or tax refund if you get one) to contribute to your TFSA. I’m pretty sure I’m going to be doing that this year.

  10. I love both my RRSP and TFSA. My TFSA is used for my investments and its perfect, since I don’t have to pay taxes on any of the growth and I bought my stocks while I was a student, so I wasn’t taxed on the money I saved to buy into the market. But I love the RRSP tax refund, and I like the fact that it’s set aside specifically for my retirement, whereas my TFSA is a little more flexible with what I use the money for.

    I also won’t have a very big pension (even though I’m employed full time, I don’t really work “for” a company, I work for two individuals, and so I’m not going to have a large pension to fall back on) so contributing to my RRSP helps me sleep at night.

    • @Money Rabbit- Sounds like a perfect game plan (save the money while you’re a student because it isn’t taxed and put it into a TFSA)! I agree that both are good, for different reasons, and you can’t really have one over the other. They are both great ways to save for retirement or other big life purchases (e.g. down payment, wedding etc.). Good tax shelters to keep the tax man away (for the time being, anyway!).

  11. You forgot the major point of RRSPs for young folks:
    Your allowable contribution limit for RRSPs will ROLL OVER from year to year. So you don’t have to contribute right away but it is worth doing so once you’ve settled into more permanent work and then you can make much more significant contributions.

    and Andy wrote:

    “My strategy this year is to max out RRSP contributions as much as possible and take the tax refunds and put it in TFSA”

    This is SMART!

  12. Ummm… I think people are highly neglecting the benefit of an RRSP.

    The money is not taxed going in… it is tax deferred…. yes you do pay tax on the income gained but only on the back end when you take it out. It not only accumulates tax free but YOU DON’T PAY TAX GOING IN.

    On the flip side…. with the TFSA you are dealing with after tax income…. So of course it is better that the tax income will never be taxed but you have to account for the fact that you are able to invest less because it is after tax dollars.

    If the goal is to save for retirement it seems always better to invest in the RRSP first as you are essentially able to invest more because you pay less tax.

    Imagine you are trying to figure out what to do with 8,000 ish dollars.

    One option is to pay the tax upfront and then put the 5000 dollars into a TFSA.

    The other option is to put the whole 8,000 into an RRSP (assuming you have room)…. if you have a cash flow issue you can borrow to put more in and pay off with the return.

    The fact that you can essentially invest more (because you are allowed to invest the taxes) means that for retirement purposes you will almost always be better in a RRSP. Yes it is true you have to pay tax on the capital and the interest but here’s the thing – in the TFSA youalready paid the tax on the principle because it is after tax dollars you are investing….

    • @Merlin- Thanks so much for your comment. You have detailed the inverse relationship of the RRSP and the TFSA. It’s best to put money away in both, but if not possible, everyone has a different preference. I suppose it also is important to consider what tax bracket you are in too :)

  13. Hello!
    I just found your site.. well, I am not sure how I got here.
    Love it though.. am learning lots.

    My husband and I are both 25 and living in Northern BC.

    We often have this debate alot.. RRSP vs. TFSA. I’m all for TFSA because I am terrified we are going to be in a high tax bracket when we retire. Hubby is an RCMP officer so will have a good pension. He contributes more to his RRSP because he loves the tax return (sometimes I think he forgets that we’ll be paying all that tax later!) and puts every cent we get back onto our mortgage.

    I on the other hand, will not have the a great pension.. so RRSP seems like a better option for me.

    Anyways, my mind spins sometimes thinking about what to do, what is best… etc etc.. Hubby just tells me that atleast we are saving something. Some of our friends don’t even know what an RRSP is.. :S

    • @Sarah- I’m so happy that you enjoy my blog! Personally, I think a TFSA is where its at for us (especially us with pensions) because who knows when the rules might change? The RRSP is good though if you plan to use it for the HBP (Home Buyers Plan) or LLP (Lifelong learning plan). I think you should be very very proud that you contribute to an RRSP/ TFSA. I know many many many people who are my age (and even in their 30’s) are are not contributing to either.

  14. Sarah said, “I on the other hand, will not have the a great pension.. so RRSP seems like a better option for me.”

    I’m in the same boat as you and your and your husband. I have a great pension, my wife has no pension. I take out Spousal RRSPs–I get to deduct the return and use it on the mortgage, SHE gets to withdraw the RRSP income when we retire and not be taxed because her income will be minimal. For people like us, RRSPs win over TFSAs all the time.

  15. Great post! Like some of the commenters above me, I have no idea what tax bracket I will be in when I retire. If I had to guess at this stage, I’d say I would be in a lower tax bracket, which would mean I should prefer socking money away in my RRSP before the TFSA.

    However, I have read a few articles about METRs and how they can change your situation upon retirement. Currently, I don’t really understand the concept. Therefore, I have just started contributing to a TFSA (Questrade’s TFTA) since I already have 4% of each pay cheque going into my RRSP through my employer.

    If nothing else, having a decent chunk of change in both the RRSP and TFSA will afford me more flexibility when I retire.

    • @Money in Training- Does your employer match the 4% that you put in your RRSP? You sound like you have a great plan ahead. I agree, the METR’s can be completely unknown in the future! I personally like the idea of both RRSP and TFSA as well, though I will probably focus more on my TFSA (provided it still exists in 20 years HA!) because of my defined benefit pension plan.

    • Money in Training, For nearly 85% of Canadians, RRSP’s as a savings vehicle are the least efficient way to save for retirement. I say this because when you receive the income in retirement, you pay taxes on the money you originally deposited and all of the capital gains and dividends it earned. As an example, if your portfolio of investments earned $50K in Capital Gains and $25K in Dividends all would be taxed as employment income through the RRIF. If your tax rate was 30% in retirement you would pay in taxes to CRA $22.5K. If you had the investments in a “Cash Account” you would receive preferential tax rates of 15% on Capital Gains and 13% on Dividends. So all said and done you would pay a total of $10.7K in taxes. This means you got to keep an additional $11.8K in your pocket

  16. Y&T:

    I lied. They actually match upto 3% of every pay cheque. So, essentially 6% of every pay is going towards my RRSP. They also offer a registered and non-registered employee stock purchase plan. They match 50% of your contribution into the ESPP upto 4% of your salary across both (the NR-ESPP and R-ESPP) plans.

    I have chosen to sock away 3% of every pay into the RSPP and 4% of every pay into the R-ESPP so as to get the maximum possible match from my employer. Why turn down a guaranteed 100% and 50% ROI?

    • @Money In Training- That’s excellent! I agree. I think it’s funny why people would turn down employee matching. It’s free money!

  17. YoungandThrifty, I have to tell you the truth. Anyone who has a pension plan at work and contributes to an RRSP is “COOKOO”. Let me explain. In Canada we have a progressive tax system with increasing rates of taxation as your income reaches the predetermined thresholds. Now let’s say that your pension is going to pay you 70% of preretirement income. If you were earning $80K then pension would we $56K. Now here comes the terrible part.
    At a taxable income of $56K you would have a marginal tax rate of 31% at todays tax rates. Then you start to receive income from your RRIF to the tune of $16K. You now have a total of $68K retirement income. Now your marginal tax rate is 33% and you have paid taxes on the RRIF income to the tune of $5000 When you deposited this $16K to your RRSP you received a tax deduction of $5600 if you were at a marginal tax rate of 35% So low and behold, for a $16K RRSP contribution your only gain in retirement was $600. The Canada Revenue Agency always gets their tax dollars. There are strategies that are OK, and there are strategies that are AMAZING. Would you take your Rolls Royce to Canadian Tire for and oil change?

  18. It sounds to me like you need a complete Modern Canadian Personal Finance overhaul.
    You have been indoctrinated into a belief system that is old and inefficient. The government and the banks only want one thing from you, for the banks its to keep you in debt for as long as possible, and the government wants your taxes.
    You have the illusion of having savings while paying interest on debt. If you are willing to learn with an open mind, I will show you how you can pay off your mortgage and be debt free in 1/2 the time. You don’t need to get a second job, and you don’t need to stop having fun. The system I employ comes from Australia. It has been around for over 50 years and its the only way people bank. Let me know if this sounds like a better way.

    • @CCIQ- I know in Australia they have something similar to a tax free savings account. My aunt and uncle who are retired are enjoying something from their.. is it called a “super”?? Once I finish my HBP I am going to go to TFSA all the way.

      • Dear young, I was referring to the way that Australians conduct their day to day banking. They have a solution that combines their chequeing account, mortgage, line of credit, credit card, and savings all within one product. This product allows for the mortgage to be paid off in half the time, saving the homeowner tens of thousands of $$$’s in interest expense. The mortgage portion is based on simple interest not compound interest that which Canadian banks use. I’m here to tell you that it has been here in Canada for the past 10 years. It is gaining momentum and the big banks are loosing clients to it. How would you like to tell your bank, “The Gravy Train Is Over” I have much more information to share.

  19. Hi Young,

    Robert has a point about the RRSP. No your not COOKOO!

    With RRSPs you can contribute later.

    Since 2005 the government has been looking at ways to clawback money like the OAS. We will see more changes to OAS. RRSPs really hurt if one has saved too much, later when you pay taxes.

    How about something different?

    At looking at the end game? Retirement? If you are lucky enough to have a full pension you have choices do you want more money now (at retirement) and less survivor money to go to your partner? With Life insurance you have choices? Can one get 7 or 8% guaranteed at retirement?

    Life insurance (permanent) has a number of things going for it.

    If you are disabled does the RRSP or TFSA continue to be funded to 60 or 65 every year?
    Can you get all your money back plus interest?
    Is there a death benefit?
    Can you borrow from it and be credited for all your money?
    Is there creditor protection?
    Can you spend and enjoy your money with less risk and pay less taxes plus have more protection?

    The problem is many people have no way of testing different models factoring taxes, inflation, markets etc. The current financial software(out in the market) really looks at rates of return, with out looking at other factors.

    If you are interested I can do a short webinar on why one would want (not need) permanent life insurance as part of a retirement plan. Assuming they have a partner, kids, etc.



  20. Wow, what an extremely thorough and comprehensive post regarding the differences between these two savings vehicles, as well as what makes them good/not so good for those trying to choose between them. So often you find so much general information regarding these two, but no real in-depth, side by side comparison such as this. Thanks for posting!

  21. Dear Young, saw your site listed in National Post, Six of the coolest money websites. TFSA vs. RRSP post is ongoing family debate, so read all previous posts. This may be late but for my money TFSA’s all the way in to-days world of slow growth and low interest rates stretching till ?
    If employed with no company pension a TFSA with no taxable income on retirement might even allow person to receive GIS if only taxable income is CPP and OAS. A trading TFSA account costs $50.00 yearly, no fee usually after $25,000.00. Good dividend paying stocks earning 4% and up add to return as well as hopeful increase in share price. All non-taxable in acc. $29.00 trading fee mentioned is only problem if engaged in frequent trading.
    RRSP trading acc. usually costs $100.00 yearly, some no fee after 25K, some not until 100K. Trades same cost & returns as per TFSA BUT all taxable income whether withdrawn early or after retirement.
    If you are going to be receiving a company/government pension TFSA would also be my way to go. IE: RCMP pension (indexed) increasing ever year even if slightly on top of CPP and OAS means even higher tax bracket to pay with RRSP returns. Wife with little or no income, priceless. If money contributed to his and her TFSA’s builds up till retirement, means cash windfall there to be employed however tax free. Plus with both receiving CPP and OAS and splitting his pension with no other taxable income ie: RRSPs, more tax savings.
    Point for RRSPs, they can also be split with spouse, but point lost if both have them.
    Family debate has both situations and unless government changes TFSA rules in future, looks like a good retirement tool to use.

    • Hey Don,

      We’re always happy when the mainstream press shines a little light in our direction!

      First off, I myself am very upset by the fact I can’t use a TFSA right now – or rather the benefits don’t outweigh the drawbacks. As an American/Canadian citizen that has to file taxes in both countries the TFSA is a nightmare.

      Now when it comes to factoring in GIS into the debate I’m not sure I would depend on our current retirement structure staying the way it is. Also, if you have that little income in retirement, the low tax rate you’d pay on RRSP withdrawals shouldn’t hurt you too bad, and should be down substantially from what it was in your working years?

      The numbers in this article are now a little outdated. Get rid of all of those fees and go to a discount brokerage where your TFSA and RRSP are free, and where you can get your ETFs commission-free! Check out our recent Questrade updates for more info.

      I completely agree that if you are getting a pension the TFSA looks a lot better, especially considering the move to raise tax rates on upper tier earners going forward in the Western World – as a teacher that can’t use a TFSA this makes me even more angry!

      Check out our free ETF investing guide and see what you think!

  22. If you’re earning a large income then it makes sense to invest in RRSPs to offset the higher rate of income taxes you’ll pay. IMO, that, and the fact that you can contribute much more to an RRSP than a TFSA (currently, anyway) are the only reasons to invest in an RRSP. Otherwise, a TFSA is the clear winner. For example, let’s say for argument’s sake you invest $5K in a TFSA and in 35 years it’s worth $30K. The initial $5k investment was made with after tax income but you won’t pay a cent in income taxes on the $25K ROI. Under the same scenario with an RRSP you’d have to pay income tax on every penny of that $25K. In addition (depending on how much you withdraw for retirement) if you’re eligible for the GIS it could be clawed back at an effective marginal tax rate of 50%! That’s brutal. And, whose to say in 20-30 years’ time (if not sooner) the government decides to apply the same rule to OAS? Due to demographics going forward, there will be fewer and fewer workers to pay CCP premiums for an ever-increasing number of retirees. So, in the long term the CPP is not sustainable unless taxes rise markedly or benefits are cut back. People need to take charge of their own retirement destinies and put as much away as they possibly can.

    • I completely agree on your idea surrounding government clawbacks Bodrey. I think that scenario grows increasingly likely every year and why I too favour the TFSA. Thanks for the input!

  23. I have been asked this question so many times, and the answer really depends on each individual’s personal situation. Their current tax bracket, risk tolerance (therefore expected returns), etc. Ideally, people should contribute the maximum to both every year.



  24. @young, I recently discovered this website and really enjoyed reading your post. My wife and I are always discussing the merits of investing in TFSA vs. RRSP, and I’m curious about what people’s thoughts are as to what we have chosen.

    My wife and I are both educators and have an excellent, defined benefit pension plan. Each of us works full time and so we can count on a reasonable retirement income. As the pension plan is obviously registered, it’s my understanding that we are benefiting from tax deductions based on contributions to that pension.

    That being said, my wife and I opened Tax Free Savings Accounts in each of our names as soon as we were employed out of university. Her account is intended for short term saving/spending goals, and when we had contributed the maximum amount to it, we used about half of it to pay for an auto loan that I got out of school as we needed a vehicle. Now that’s it’s been over a year, we plan to continue to contribute to it in the hopes of paying her large student loan off at some point.

    We use my Tax Free Savings account as a long term investing tool that is invested in a diversified, medium risk mutual fund with the hopes that it will be an excellent supplement to our retirement income as (like you mentioned) the money will be easy to access and obviously tax free.

    We do not invest in any RRSP aside from the pension contributions that we make on a monthly basis.

    Any thoughts? I love the dialogue that occurs on this website and will continue to read it regularly. Thanks!

    • @Michael – Hey Mike, I thought I could field this one for you since both my fiancee and I are teachers and are quite familiar with the defined benefit plans you are referring to.

      The TFSA is definitely a great friend to someone in our position. Have you read our RRSP vs TFSA article? It sort of outlines the cost-benefit analysis. I’d say that for us the TFSA has a lot of flexibility advantages – BUT – only if it’s used for long-term savings and you’re not tempted to keep pulling the money in and out.

      Thanks for stopping by and commenting! Have you checked out our Free eBook on how we invest?

  25. Me and husband both filed tax last year for 980000$ income. We ended up paying out of out pocket. My employer deduct LAAP (pension plan 300$ amount)every month from my pay check and my husband does not have any pension plan. He doest want to buy RRSP because he said we can not take mony out of it when we need it or we will have to pay too much tax. Should we invest in TFSA than ?? Please help

  26. Sometimes one forgets that TFSAs are transferred upon death to some else ie) Designation of Successor Holder and/or Beneficiary totally tax free. If a spouse then the entire amount transfers without additional room. If another person, successor holder, gets also tax free as well as it too bypasses probate depending on where you live. If one defines a beneficiary with an RRSP it will be taxed to the estate. The last to die may also have a much bigger tax liability. This may be important or a consideration in passing on wealth to the next generation…

    Just some passing thoughts… There is definitely a room for both but “it depends” on personal philosophies etc…..

    BL. If in a higher tax bracket and upon retirement in a lower bracket then RRSP may make sense; however, I lean towards a TFSA as I do not believe our tax system will reduce marginal tax rates as we address our social needs, health care, senior support etc.. etc..
    Maximize TFSA while we still can.

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