Saving
TFSA or RRSP — which should I contribute to first?
- RRSP — contributions cut taxable income now; withdrawals are fully taxable and permanently consume the room (except HBP and LLP). Room is 18% of earned income up to the annual cap.
- TFSA — no deduction, but growth and withdrawals are tax-free and the withdrawn room comes back the following January. It never affects income-tested benefits.
Rules of thumb: income under about $55,000, favour the TFSA; income above roughly $100,000, the RRSP deduction is worth more. First-time buyers should look at the FHSA first — it combines the RRSP deduction with tax-free withdrawal for a home purchase. If you are receiving GIS or the Canada Child Benefit, TFSA withdrawals will not claw them back; RRSP withdrawals will.
Related Questions
TFSA or RRSP — which should I contribute to first?
Use the RRSP when your current tax rate is higher than your expected retirement rate, and the TFSA when it is lower or you may need the money before retirement. Withdrawals differ most.
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