Should I contribute to my TFSA or RRSP?

What’s the best choice when saving for retirement: contribute to your Registered Retirement Savings Plan (RRSP) or the Tax-Free Savings Account (TFSA)? We can help you decide which one is right for you.

  • RRSP contributions give you an immediate tax deduction, and tax-deferred growth, but withdrawals are taxable.

  • TFSA contributions give you no immediate tax deduction, but all growth and withdrawals are tax-free to you.

Truth is, both are good choices. In many cases, it’s a great idea to have both RRSPs and Tax-Free Savings Accounts.

Remember, the factors influencing the best choice for you can change over time, so it’s important to review your situation regularly with your financial advisor, to ensure your savings reflect both your current circumstances and reasonable expectations of the future.

Quiz: Should you contribute to your RRSP or TFSA?

Our short quiz can help you decide what your retirement saving priority is, to get you on your way.

  • #1: You expect your retirement tax rate to be

  • equal to or less than your current tax rate

  • more than your current tax rate (for example, if you expect a large inheritance or large investments in your retirement, perhaps from sale of property or business)

  • #2: You are in a

  • higher tax bracket and have large unused RRSP deduction room

  • lower tax bracket, or want to keep your RRSP contribution room available for a future year (for when you expect higher income and/or to put a windfall into your RRSP)

  • #3: You've maximized your

  • Tax-Free Savings Account (TFSA) deposit and need to save more to achieve a comfortable retirement

  • RRSP contributions or can no longer contribute to an RRSP

  • #4: You want

  • to avoid ‘raiding’ your savings for short-term use

  • an emergency reserve for life’s uncertainties before retiring (you can get back Tax-Free Savings Account contribution room for withdrawals, and withdrawals are tax-free), or would like to access lump sums in retirement without affecting your tax rate

  • #5: Do you want tax-free returns (for example, you have non-registered savings and want to shelter those savings from tax)?

  • No, this is not as important to me

  • Yes, I do

  • #6: Would more income-tested credits or benefits (Canada Child Tax Benefit (CCTB), Goods and Services Tax (GST) credit) be of interest or benefit to you now?

  • Yes, that would be of interest to me

  • No, that would not be of interest to me

  • #7: Which is more applicable to your situation?

  • You want strong creditor protection for your savings

  • You are not concerned about having this account protected from creditors (the same way RRSPs are)

  • #8: Which of the following most closely describes your current retirement plan

  • You do not yet have an income source eligible for the Pension Income Credit after age 65 (RRSPs can be converted to a PIC eligible income source, but TFSAs cannot)

  • You already have secure retirement savings, such as a large defined benefit registered pension plan

  • #9: You want

  • the ability to share your tax burden on withdrawals with your spouse after age 65 (RRSPs can be converted to an income source eligible for Pension Income Splitting, but TFSAs cannot)

  • to give money to your spouse without worrying about income being attributed back to you, if your spouse contributes the gift to their own Tax-Free Savings Account

  • #10: Do you want to not worry about the risk of paying a high tax rate, if you die before exhausting this account?

  • No, this is not as important to me

  • Yes , I don’t want to worry about the risk of paying a high tax rate

  • #11: Does this statement closely describe you? "You are close to retirement, have minimal RRSP savings, and expect to get the Allowance or Guaranteed Income Supplement (GIS)"

  • No, I don't fit this description

  • Yes , this describes my situation

  • Your result is:

Note: The information set out here is for your information only and is based on general assumptions. While our goal is to offer current, accurate and clearly expressed information, Vancity does not warrant the accuracy, adequacy or timeliness of this information. Changes to the assumptions or facts or to any applicable laws or regulations could affect the validity of this information. The information is not intended to be investment, legal, accounting, tax or other advice and you should not rely on it without seeking the advice of professional advisors to ensure your particular circumstances are properly considered. Vancity is not responsible for loss or damage that results from reliance on this information.

Contact us

Both RRSPs and Tax-Free Savings Accounts can be great choices for retirement with the right financial advice. Talk to a Vancity financial advisor today about the savings options that are right for you.

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Greater Victoria: 250.519.7000

Toll-free: 1.888.826.2489

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