RRSP vs. TFSA: Where to invest first?
TFSA (Tax-Free Savings Account)
Tax Treatment: Contributions are made with after-tax money. Withdrawals are completely tax-free.
Best For: Lower income earners expecting to be in a higher bracket later, or for flexible mid-term savings.
RRSP (Registered Retirement Savings Plan)
Tax Treatment: Contributions are tax-deductible now. Withdrawals are taxed as income in retirement.
Best For: High income earners who want to reduce their current tax bill and expect a lower bracket in retirement.
The Verdict
For most Canadians earning under $50,000, maxing the TFSA first makes mathematical sense. For those in higher brackets, the upfront tax refund of the RRSP is highly lucrative provided the refund is reinvested.