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Deciding between an RRSP and a TFSA

By ATB Wealth 19 December 2022 2 min read

Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are both registered investment vehicles that offer incentives for Canadians to save. Registered investment vehicles are not investments themselves; you can think of them as containers where you can hold your investments, such as Guaranteed Investment Certificates (GICs) or mutual funds. Holding your investments within an RRSP or TFSA changes the way those investments—and the interest they earn—are taxed.

Let’s explore the differences between RRSPs and TFSAs. The more you know, the better equipped you’ll be to choose which one is best for you and your financial goals.


RRSPs and TFSAs are taxed differently.

The biggest difference between an RRSP and TFSA shows up on your tax bill.

When you invest money within an RRSP, your contributions are tax deductible in the year you make the contribution. Both your contributions and your investment earnings are tax-deferred, meaning you’ll have to pay tax on the money when you withdraw it from the account—at which point you’ll ideally be in a lower tax bracket.

In comparison, with a TFSA, your contributions are not tax deductible (you are making them with money you have already paid tax on). The benefit of a TFSA is that your investment earnings and withdrawals are tax-free going forward. Your growth is never taxed.

Video: How do TFSAs and RRSPs work?


Should you use a TFSA or RRSP?

If minimizing your income tax is your only concern, follow these general guidelines:

  • If your income tax rate is likely to be higher when you make withdrawals, use a TFSA.
  • If your income tax rate is likely to be lower when you make withdrawals (i.e. when you retire), then choose an RRSP.


You should also consider flexibility and access to funds.

Although you should definitely consider taxes when making your decision, you should consider other factors too—like your saving and spending habits.

Because you don’t have to pay tax when you withdraw from your TFSA, it’s easier to access those funds at any time, for any reason. As such, TFSAs are a great option if you are unsure when you will need to use your savings. Just know that you can’t re-contribute back into your TFSA in the same calendar year, unless you still have unused contribution room.

But if you are committed to saving for retirement and want to avoid the temptation of accessing those savings earlier, an RRSP is the wise choice. The tax consequences of withdrawing RRSP funds can be significant, so it’s always best to leave those savings untouched until you’ve retired. For this reason, the inflexibility of an RRSP might be better for you even if the numbers make a TFSA look tempting.


RRSPs and TFSAs are great examples of how the types of accounts in which you hold your investments can be just as important as the investments themselves. If you’re interested in learning more about investing and what options are best for you and your financial goals, call our Wealth Advice Centre at 1-855-541-4387. Our advisors are here to help guide you through your investing journey and find a solution that suits your needs.

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