RRSP vs. TFSA: Which One Wins for Your Salary?

The debate between the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) is a classic Canadian finance dilemma. The "right" choice depends almost entirely on one variable: your tax bracket.

The RRSP Strategy (Tax-Deferred Growth)

An RRSP lets you contribute pre-tax dollars. If you earn $80,000 and contribute $10,000, the CRA taxes you as if you only earned $70,000.

• Best for: High earners who expect to be in a lower tax bracket during retirement.
• The Trap: You must pay taxes when you withdraw the money. If you're in a high bracket both now and then, the benefit is minimized.

The TFSA Strategy (Tax-Free Growth)

A TFSA is funded with after-tax dollars. You don't get a refund today, but you never pay taxes on the growth or withdrawals.

• Best for: Everyone, but especially those in lower tax brackets or those who need flexibility.
• The Power: $10,000 invested today that grows to $50,000 remains $50,000 in your pocket.

Which one should you pick?

1. Lower Income (< $50k): Max your TFSA first. The tax refund from an RRSP is too small to outweigh the flexibility of a TFSA.
2. Medium/High Income (> $100k): Use the RRSP to "drop" your tax bracket, then reinvest the refund into your TFSA.
3. Planning for a Home? The FHSA actually beats both for the first $8,000 of savings.

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Not sure where you stand? Ask our AI Assistant: "I earn $95k in BC and have $5k to invest, should I use RRSP or TFSA?" for a personalized breakdown.