The most common question we hear at Terces Finance is this: Should I be putting my money in a TFSA or an RRSP?
The honest answer is: it depends. But more often than not — both.
A Side-by-Side Comparison
The TFSA
• Contributions are made with after-tax dollars (no deduction)
• Growth is 100% tax-free
• Withdrawals can be made at any time with no tax and no penalty
• Contribution room accumulates annually ($7,000 in 2025) - unused room carries forward
• Withdrawals do not affect OAS, GIS, or other income-tested benefits
• Best for all income levels, especially those in lower tax brackets today
The RRSP
• Contributions are tax-deductible — they reduce your taxable income this year
• Growth is tax-sheltered, not tax-free — it is deferred
• Withdrawals are taxed as income in the year you withdraw
• Contribution limit: 18% of prior year's earned income (up to the annual maximum)
• Converts to a RRIF at age 71
• Best for high-income earners who expect to be in a lower tax bracket in retirement
The Golden Rule
If your income is below $50,000 today, maximize your TFSA first. Your current tax rate is relatively low, so getting a deduction now is not as valuable as keeping all future growth tax-free.
If your income is above $80,000, an RRSP contribution today can generate a significant tax refund. That refund can then be invested in your TFSA. This is the RRSP-to-TFSA cycle that savvy Canadians use to compound faster.
Why the Best Strategy Is Usually Both
A well-structured financial plan uses both accounts strategically: RRSP for tax reduction today, TFSA for tax-free growth and flexibility. Combined with an insurance investment vehicle, this three-layer approach is what Terces Finance builds for clients across Canada.
Not sure which is right for your situation? Let our advisors run the numbers for you — free.
Book a free strategy session — we will show you exactly how to use both.
