TFSA vs RRSP: Which should I use first?

For most Canadians, use your TFSA first if your income is low-to-moderate or you may need the money before retirement. Use your RRSP first if you’re in a high tax bracket now and expect to be in a lower tax bracket when you withdraw in retirement.

Quick rule of thumb:

• Choose TFSA first if you’re early career, earning modest income, saving for flexibility, unsure about future income, or might need the money for a home, emergency fund, school, or career change.
• Choose RRSP first if you’re earning a high income, want a tax deduction now, have employer RRSP matching, or are close to retirement and expect lower taxable income later.
• If your employer matches RRSP contributions, take the match first before TFSA. Free matching money usually beats the TFSA/RRSP optimization question.
• If you can max both, use both: RRSP for retirement tax planning, TFSA for flexible tax-free growth.

A practical order for many people:

1. Build an emergency fund, often in a TFSA if you have room.
2. Contribute enough to get any employer RRSP match.
3. TFSA next if you’re not in a high tax bracket.
4. RRSP next when your income is higher or you want to lower taxable income.
5. Revisit each year as your income and goals change.

The main difference: TFSA contributions don’t give you a tax deduction, but withdrawals are tax-free. RRSP contributions usually reduce taxable income now, but withdrawals are taxable later.