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Should I max out my RRSP or TFSA first?

March 1, 2024
min read

Trying to decide where to invest your savings? Here’s what you should consider before making your decision!

Older couple looks at online investments on laptop

If you’re saving up for a lofty financial goal (like funding your retirement, furthering your education, or buying a home), then you want to do so tax-efficiently. That way, you can ensure more of your money stays in your pocket.

You know that RRSPs and TFSAs both offer unique tax benefits. So, which one should you invest the bulk of your savings in?

“Before you can answer that, it’s important to ask yourself a few questions first,” says Crystal Brown, Senior Financial Advisor at Aviso Wealth.

“For example, what are your goals and objectives? Are they short-term or long-term? What’s your income? And what do you intend to do with the money?”  

“Once you have those answers, you can decide which account makes the most sense for you. It may be a combination of both.”

We’re exploring how to pick the right account for your financial goals:

Investing in a TFSA or RRSP: The basics

With both accounts, you get more contribution room each year, and unused contribution room carries forward. The main differences lie in how you withdraw funds.

“The growth within your Tax-Free Savings Account (TFSA) is tax-sheltered. That means you don’t pay tax on the money you take out,” says Crystal.

“Your TFSA has a contribution limit, but when you withdraw funds, you can re-contribute that amount the following calendar year.”

Learn more about how TFSA contribution room works!

“In a Registered Retirement Savings Plan (RRSP), your contributions lower your taxable income today - but since the growth is tax-deferred, you eventually pay tax when you take it out. In addition, when you make a withdrawal, you don’t get that contribution room back." 

That’s why the right account for you depends on the timing of your withdrawal and the purpose of your investments.

The right account for different investment goals

You’ve set aside money to invest, or maybe you’re looking to make regular contributions. But before you do that, you want a game plan.

It all starts with identifying your goals – then, you can figure out which account will make the most sense for you.

Let’s explore different scenarios to help you decide whether to max out your TFSA or RRSP first:

Buying a house

Getting ready to purchase your first home?

“There are benefits to using both the TFSA and the RRSP, but it really comes down to the member,” says Crystal.

One option is to put your down payment in your TFSA. When it’s time to withdraw it, you won’t pay a penalty for taking the money out.

But what if you’ve already saved a significant amount of money using your RRSP? In that case, you can use the Home Buyers’ Plan (HBP).

The HBP allows you to withdraw up to $35,000 of your RRSP funds to buy or build a home, without paying taxes on those funds – as long as you pay the money back over time (15 years). Otherwise, it becomes taxable income.

“If you don’t think you’ll be able to pay the money back, I’d suggest using your TFSA instead,” says Crystal.

“To use the HBP, the money must be in your RRSP for at least 90 days before you can withdraw it. If you already have money saved in your RRSP, then I’d suggest using it for the purchase.”

Retirement savings

You might think that RRSPs are the default choice for retirement savings. But depending on your income, you may actually benefit more by using your TFSA to save for retirement.

“If your income is in a lower tax bracket, you can put your savings in a TFSA for now. Eventually, you can move it to an RRSP when your income increases. Then you’ll see more benefits from the tax refund.”

“When your income is below $50,000 annually, the TFSA might be a better fit,” says Crystal.

But what if you already have a pension plan set up through your employer? Consider that your workplace pension plan will use part of your RRSP contribution room.

“You might choose a TFSA over an RRSP as a retirement savings vehicle if you already have a pension,” says Crystal.

Post-secondary education

Finally: How should you choose between the RRSP or TFSA for your education?

Through the Lifelong Learning Plan (LLP), you can withdraw up to $10,000 in one calendar year from your RRSP to pay for education for you or your spouse.

You can withdraw up to $20,000 total without tax consequences, as long as it’s within the allowable withdrawal period - which ends in January of the fourth calendar year after your initial withdrawal.

Similar to the HBP, you must repay the money to your RRSP within 10 years.

The TFSA offers more flexibility in this regard, given that you don’t have to repay the money once you withdraw it.

“Again, it might come down to where your savings are currently. If you already hold funds in your RRSP, I’d suggest using that over your TFSA,” says Crystal.

Which investments should you hold in your registered savings plan?

Not sure how to invest the funds in your TFSA or RRSP? That’s where we can help!

“Through our multi-asset solutions, we provide diversified portfolios to our members, which are created based on your risk tolerance and investment objectives. Since your portfolio is well-diversified, you can better mitigate losses during market downswings,” says Crystal.

A Cambrian Advisor can help you identify your financial goals and map out how to achieve them.

“Sometimes, people don’t realize what’s most important to them until you help them paint the picture of their financial situation. We do that through our discovery process. By asking questions and going through the process, we learn what really matters to our members.”

See the difference for yourself - book a meeting today!


Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc.

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