RRSP vs TFSA: Which Account Should You Use?

The Short Answer

Most Canadians earning under $60,000​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ should fill their TFSA first. Higher earners get more mileage from the RRSP upfront tax deduction. Everyone should hold XEQT inside whichever account they choose.

That is the answer. Everything below​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ explains the why so you can apply it to your own situation. But if you came here just for the verdict, you now have it. The rest of this page gives you the tools to understand the reasoning, handle the edge cases, and stop second-guessing yourself every RRSP season.

The RRSP versus TFSA debate becomes​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ the most-searched personal finance topic in Canada every February and March when RRSP season hits. Banks run full ad campaigns. Financial advisors push their preferred products. The internet floods with calculators, conflicting opinions, and enough jargon to make your eyes glaze over. None of that complexity is necessary. The decision comes down to one core question: are you in a higher tax bracket now or will you be in a higher tax bracket in retirement?

How Each Account Actually Works

Before picking one, you need a clear​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ picture of what each account actually does to your money when you put it in and when you take it out.

A TFSA, which stands for Tax-Free Savings​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ Account, works like this: you put in money you have already paid tax on, your investments grow completely tax-free inside the account, and when you take the money out, you owe zero tax. No tax on dividends. No tax on capital gains. No tax on withdrawals. The government gets nothing on the growth. That is a genuinely powerful deal.

An RRSP, which stands for Registered​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ Retirement Savings Plan, works in almost the opposite direction. You contribute money and the CRA lets you deduct that contribution from your taxable income for the year. If you earn $80,000 and contribute $10,000 to your RRSP, the government treats you as if you earned $70,000 that year. That difference lands you a tax refund. Your investments then grow tax-deferred inside the account. When you eventually withdraw the money in retirement, every dollar counts as income and gets taxed at your rate in that year.

So the TFSA protects you on the way​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ out. The RRSP rewards you on the way in. The question is which side of that equation matters more to your specific situation. And that question has a clear answer once you understand where your income falls now versus where it will land in retirement.

The Core Decision: Your Income Now vs. Retirement

This single comparison determines which​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ account wins for you. Everything else is a footnote.

The RRSP tax deduction saves you money​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ at your current marginal tax rate. If you are in the 26 percent federal bracket today, every RRSP dollar you contribute saves you 26 cents in federal tax plus whatever your provincial rate adds on top. In Ontario at $90,000 income, the combined marginal rate sits around 43 percent. That refund is real money and worth capturing.

But here is the catch: when you withdraw​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ from your RRSP in retirement, every dollar is taxed at your income level in that year. If your retirement income between CPP, OAS, any pension, and RRSP or RRIF withdrawals pushes you into the same bracket or higher than you are in today, the RRSP deduction was not as helpful as it seemed. You deferred the tax but did not reduce it.

Now look at the opposite scenario. You​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ earn $48,000 today. Your marginal tax rate is relatively low, somewhere around 29 to 32 percent depending on your province. You contribute to your RRSP and get a refund at that low rate. But in retirement, you might have CPP, OAS, and a workplace pension that combine to push your taxable income back up near $60,000 or higher. In that case, you deferred tax at a low rate and paid it back at a higher rate. That is the wrong direction entirely. The TFSA wins here because there is no tax at all on withdrawal, regardless of your retirement income level.

There is another layer worth naming:​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ income-tested benefits. TFSA withdrawals do not count as income for benefit calculations. RRSP and RRIF withdrawals do. That matters for OAS clawback, GIS eligibility, and certain provincial benefits. A high enough RRIF withdrawal in your 70s can trigger the OAS clawback, which starts at roughly $90,997 of net income in 2025. If your retirement income sits close to that threshold, having tax-free TFSA withdrawals available gives you a way to draw income without triggering the clawback. That is a real advantage that does not show up in simple tax calculators.

Side-by-Side Comparison Table

Here is every major difference between the two accounts in one place.

That last row is not a throwaway. Both​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ accounts hold XEQT equally well. The decision between RRSP and TFSA is entirely about tax strategy, not about which account gives you better investment options. You can buy XEQT inside a TFSA on Wealthsimple with zero commission. You can buy XEQT inside an RRSP on Wealthsimple with zero commission. The fund is identical either way.

Decision Flowchart: Which Account First?

Walk through these questions in order​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ and you will have your answer in under two minutes.

This is a text-based flowchart designed​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ to give you a clear, step-by-step path to your answer. Start at question one and follow the path that matches your situation.

2025 and 2026 Contribution Room Numbers

The CRA sets these limits annually.​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ Here are the exact numbers so you can plan without guessing.

The TFSA contribution limit for 2025​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ is $7,000. The same $7,000 limit applies in 2026. The CRA indexes the TFSA limit to inflation in $500 increments, so it stays at $7,000 until inflation moves it to the next rounding threshold. If you have never contributed to a TFSA and were 18 or older in 2009 when the account launched, your cumulative lifetime room as of January 1, 2025 is $95,000. As of January 1, 2026 it will be $102,000.

For the RRSP, the contribution limit​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ for the 2025 tax year is $31,560. The limit for 2026 is $32,490. Your actual personal RRSP room depends on your earned income from the previous year. The formula is 18 percent of your prior year earned income up to the annual maximum. So if you earned $80,000 in 2024, your 2025 RRSP room is $14,400. If you earned $200,000 in 2025, your 2026 RRSP room is capped at $32,490 regardless of the 18 percent calculation coming out higher.

Unused RRSP room carries forward indefinitely.​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ If you have never contributed to an RRSP and have been working for 20 years, you may have a large amount of accumulated room sitting unused. Check your Notice of Assessment from the CRA or log in to CRA My Account to see your exact available room for both accounts. Your TFSA room is listed there too.

Where XEQT Fits In

XEQT belongs inside whichever account​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ you open. The fund is the answer. The account is just the wrapper.

XEQT is the iShares Core Equity ETF​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ Portfolio from BlackRock Canada. It holds a globally diversified mix of equities across Canada, the United States, international developed markets, and emerging markets. It rebalances automatically. Its management expense ratio is 0.20 percent annually. You buy it in one trade and own thousands of companies around the world. It is the simplest, most cost-effective way to invest in equity markets available to Canadian investors today.

XEQT works identically inside a TFSA,​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ an RRSP, or a non-registered account. You buy the same ticker symbol. You pay the same MER. You get the same global diversification. The difference is what happens when the fund earns dividends or grows in value. Inside a TFSA, dividends and capital gains are completely tax-free. Inside an RRSP, they are tax-deferred until withdrawal. Inside a non-registered account, dividends are taxable each year and capital gains are taxable when you sell.

This is why the account choice matters​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ more than the fund choice for most investors. Most Canadians spend enormous energy researching which ETF to buy and almost no time optimizing which account to hold it in. The account decision has a larger after-tax impact over a 30-year horizon for most people. XEQT handles the investment side. The TFSA or RRSP handles the tax side. Together they form a genuinely complete investing strategy.

There is one nuance worth noting for​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ RRSP holders. XEQT includes US-listed equities held through its underlying funds. US dividends paid inside an RRSP are exempt from the 15 percent US withholding tax under the Canada-US tax treaty. The same US dividends paid inside a TFSA are subject to that 15 percent withholding and you cannot recover it. For most investors building wealth over decades, this difference is small relative to the simplicity benefit of just holding XEQT in whichever account makes sense. But for larger portfolios where tax drag on US dividends is meaningful, holding US equity ETFs directly inside an RRSP and XEQT in the TFSA is a more tax-efficient structure.

Common Mistakes to Avoid

Most RRSP and TFSA mistakes come from​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ misunderstanding how the accounts work, not from making the wrong account choice.

The most expensive TFSA mistake is treating​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ it like a savings account. Millions of Canadians hold their TFSA in cash or a low-interest savings product inside the account. The tax-free shelter is wasted on 2 percent savings account interest. A TFSA is a legal structure, not an investment product. You decide what goes inside it. Put XEQT in there and let compound growth work without the government taking a cut.

The most common RRSP mistake is contributing​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ every February without checking whether it actually makes sense for your current income. Banks run massive RRSP season campaigns because they want your deposits. That does not mean an RRSP contribution is the right move for you in a given year. If your income dropped significantly, if you had an unusually low-income year, or if you expect to be in a higher bracket next year, it sometimes makes sense to delay the contribution or direct it to your TFSA instead.

The final and perhaps most important​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌​​​‌​‌‌​‌‍‌‌​‌​‌​​‌​​‌​​‌​‌​​‌​‌​​​‌​​​‌‌ mistake is analysis paralysis. Canadians spend so much time trying to optimize the RRSP versus TFSA decision that they delay investing altogether. Time in the market matters more than which registered account you use. If you are genuinely unsure, open a TFSA, buy XEQT, and start. You can always course-correct later with better information. You cannot recover the compound growth you missed while you were still deciding.