Home -> RRSPs RRIFs and TFSAs -> Tax-Free Savings Accounts (TFSAs) -> TFSA vs RRSP

Which is Better - TFSA or RRSP - or FHSA?

Contributions to an RRSP are tax-deductible, and contributions to a TFSA are not. Contributions to a First Home Savings Account are tax-deductible, and qualifying withdrawals are not taxed.

The RRSP and TFSA have almost equivalent results when the marginal income tax rate for RRSP contributions is the same as for RRSP withdrawals.

The RRSP is better if

	the marginal tax rate for RRSP withdrawals will be lower than the marginal tax rate when contributions are made
	you are saving to use as a last resort fund for emergencies

The TFSA is better if

	you are in the lowest tax bracket
	the marginal rate for RRSP withdrawals will be higher than the marginal rate for contributions
	you are close to retirement age, and have little or no savings or pension. RRSP/RRIF withdrawals may cause loss of Guaranteed Income Supplement (GIS) or other benefits.
	further RRSP contributions will result in withdrawals which are high enough to cause a clawback of your Old Age Security.

The TFSA will be useful in some situations such as:

	when there is no RRSP contribution room available
	for savings goals such as a vehicle, appliances, down payment for a house, etc. The TFSA could be used instead of, or in combination with, the RRSP Home Buyer's Plan (HBP).
	seniors who are not eligible, because of age, to contribute to an RRSP
	young people just starting out, in a low tax bracket now, expecting to increase earnings and be in a higher tax bracket in a few years. At that time, the TFSAs could be transferred to an RRSP, making the contribution when the tax savings is greater. Make the transfer near the end of a calendar year, so that the withdrawal increases your TFSA contribution room sooner.