TFSA vs RRSP for retirement planning

Image result for tfsa rrsp

This debate has been pretty heated since the introduction of the TFSA back in 2009. What is the best investment tool? Which account should you contribute to?

To see what makes the most sense, you need to look at a number of factors in your current situation, but also at what your future situation might be like.

First, here is a quick recap of the characteristics of both accounts:

Age requirement & limit Need to be 18; can keep the account for lifetime Can keep the account until 71
Income requirement No Yes, need to have filled a tax return to open an account
Contributions $ 5 500.00 for 2015 plus any unused contributions from previous years 18% of your income up to $ 24 930.00 for 2015 plus any unused contributions from previous years
Tax deductible No Yes
Tax on withdrawals No Yes, except for Home Buyer Plan & Lifelong Learning Plan
Impact on government benefits No Yes, withdrawals are considered as income. Could trigger claw-back  on O.A.S. and/or cancel G.I.S.


If you are currently not earning much money and are expected not to throughout your career, you might be better off contributing to a TFSA. Since you are in a lower tax bracket, you won’t benefit that much from the tax deduction of RRSP contributions. When you retire, you won’t jeopardize government benefits and minimize your tax liability by withdrawing money from your TFSA.

On the other hand, if you are a high earner and/or have a company or government pension plan, contributing to an RRSP makes more sense, as you will benefit the most from the tax deduction. However, when you retire, your tax liability will most likely remain the same as when you were working. With the O.A.S. claw-back, it could actually even be higher.

That’s why you may not want to invest all your retirement money into an RRSP.

If you are in the Middle Class, it won’t make much of a difference if you contribute to a TFSA or an RRSP.

An RRSP will usually earn you more interests in the long run but it is important to remember that withdrawals are taxable and that they can trigger claw-backs on government benefits.

It is not the case with a TFSA.

As you can see, answering this question is actually not that easy, and there is no “right” or “wrong” answer. Both accounts have distinct advantages and disadvantages.

Personally, I tend to lean more towards the TFSA because right now, the withdrawals are not taxable and have no impact on government benefits. But I also contribute to my RRSP to get some tax relief….


  1. Good advice, I would add that if you had more than $5500 a year to invest, than I would recommend putting money into a RRSP first and reinvest the tax refund into the TFSA along with your surplus savings.


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