RRSP or TFSA — which should you fill first?

It comes down to your tax bracket now versus in retirement — plus what you're actually saving for.

Both accounts shelter your investment growth from tax, but they do it at opposite ends of the timeline. An RRSP gives you a deduction now and taxes every dollar of withdrawal later as income; a TFSA is funded with after-tax dollars and everything — contributions and growth alike — comes out completely tax-free. If your tax rate were the same going in and coming out, the two would end up identical. The choice matters precisely because that rate usually differs between your working years and retirement.

The RRSP wins when your tax rate is higher now than it will be later. If you're a high earner in your peak years, the up-front deduction is claimed at your top marginal rate, and you'll most likely withdraw in a lower bracket in retirement — you effectively arbitrage the difference. The catch is the refund: it's real money, but only if you reinvest it rather than spend it. Contributing $10,000 at a 43% marginal rate hands back about $4,300, and the maths only works if that refund goes back to work. See the size of yours with the RRSP tax-refund calculator.

The TFSA wins when your rate is lower now, or when you value flexibility. It's ideal early in your career before your income has peaked, and for any goal short of retirement, because you can withdraw at any time with no tax and — crucially — the room comes back the following year, so it isn't lost. There's a retirement angle too that's easy to overlook: because TFSA withdrawals don't count as income, they won't trigger the OAS clawback or reduce income-tested benefits and credits, which RRSP withdrawals can.

Contribution room works differently for each, and it's worth knowing. RRSP room is a percentage of your earned income up to an annual cap; TFSA room is a flat annual amount that accumulates from age 18 whether or not you file. Both carry unused room forward, so neither is use-it-or-lose-it. Watch your RRSP limit so you don't over-contribute, and let the TFSA growth calculator show what decades of tax-free compounding actually builds.

For most people it isn't strictly either/or — the accounts complement each other, and holding both gives you the same tax diversification in retirement that a mix of accounts gives American savers: pull TFSA dollars to stay under a clawback threshold, RRSP dollars up to the top of a low bracket.

A sensible default sequence: capture any employer RRSP matching first, favour the TFSA while your income is still modest, then lean into the RRSP as your income climbs and the deduction grows more valuable. And if a first home is the goal, neither of these is your first stop — start with the FHSA. The RRSP-vs-TFSA calculator shows the after-tax outcome for your specific rates.