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TFSA vs RRSP — Which Should I Use?

Written by Greg, founder of FTMarketWatch — a former licensed commodities trader, self-directed investor since. Not a licensed financial advisor.

Short answer: There's no universal answer — it generally depends on your current tax bracket versus your expected tax bracket in retirement, and how much flexibility you need. TFSAs are generally more flexible for withdrawals; RRSPs offer an upfront tax deduction that's most valuable when your current tax rate is relatively high.

Detailed Explanation

With a TFSA, you don't get a tax deduction for contributing, but qualifying withdrawals are generally tax-free, and you can typically withdraw for any purpose without losing the account's tax advantages long-term.

With an RRSP, contributions are generally tax-deductible now, which can reduce your tax bill in the year you contribute, but withdrawals are taxed as income later — so it tends to work best when you expect to be in a lower tax bracket in retirement than you are today.

Many people end up using both accounts over their lifetime rather than picking just one. For a full walkthrough of how each account works and some common real-world scenarios, see the related guide below.

Related Guide

Related Questions

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