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January 06, 2022

Which is it — TFSA or RRSP?

By Gordon Powers, Sympatico / MSN Finance

Now that the new TFSA has arrived, should you jump onboard? Or are you better off sticking with an RRSP?

If you don’t have any money or simply can’t save any, then I guess it doesn’t really matter. But if you can squirrel away even a couple of hundred bucks a month, you do have a decision to make.

Remember, RRSP contributions are made with pre-tax dollars, and while they provide tax relief, the money you withdraw is taxed as ordinary income. TFSA contributions, however, are made with after-tax dollars, while eventual withdrawals will be tax free.

So, which is it?

It all depends on whether your working income is higher than your expected retirement income. If your marginal tax rate is higher at the time of contribution, an RRSP will likely be the better choice; if the reverse is true, a TFSA will be preferable.

Not sure what the future holds? Then try the middle ground for now. Add some money to your RRSP and then use the tax refund to build TFSA savings. Here’s a calculator that can help you experiment with different scenarios. It makes a lot of assumptions, but the math is sound.

For lots of people, this won’t always be an either/or situation. Those who consistently save and invest throughout their working lives could well end up in a higher income bracket down the road. Who knows? If your circumstances change, you’ll be able to juggle between the two choices depending on how things work out. 

But, for now, you’ve got to start somewhere.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...