General information only — not financial advice for your situation.
This is a learning tool. Always check CRA My Account records and talk to a qualified professional for your own numbers.
Plain English
The RRSP gives you a tax break today but you pay tax later when you withdraw. The TFSA gives you no tax break today but you never pay tax on withdrawals. So the question is simple: will you be paying more or less tax when you take the money out? If you're in a high tax bracket now and expect to be in a lower one in retirement, the RRSP is better — you save at a high rate and pay back at a low rate. If your rate will stay the same or go higher, the TFSA is better — you skip the tax game entirely. If you're not sure, the TFSA is the safer pick.
You earn $100,000 now (31.48% rate) and expect $45,000 in retirement (19.05% rate). A $5,000 RRSP contribution saves $1,574 now. At withdrawal, you pay $953 in tax. Net gain: $621. With a TFSA, you contribute $5,000 after-tax, grow it tax-free, and withdraw tax-free — but you never got the $1,574 upfront. The RRSP wins here because of the 12.43 percentage-point rate drop.
Show the analysis
The RRSP/TFSA comparison reduces to a tax-rate arbitrage model. The RRSP provides a deduction at the current combined marginal rate (r_now) and taxes withdrawals at the future marginal rate (r_future). The TFSA contributes after-tax capital and provides tax-free withdrawals. When r_now > r_future, the RRSP generates superior terminal after-tax value because the deduction exceeds the withdrawal tax. When r_now < r_future, the TFSA dominates. At r_now = r_future, both produce mathematically identical terminal values (assuming the RRSP refund is reinvested at the same return).
Pre-tax capital: $5,000. RRSP at r_now = 31.48%: full $5,000 contributed, refund $1,574 reinvested. After 20 years at 7%: $5,000 × (1.07)^20 = $19,348. After-tax at r_future = 19.05%: $19,348 × (1 − 0.1905) = $15,662. TFSA: after-tax contribution = $5,000 × (1 − 0.3148) = $3,426. After 20 years: $3,426 × (1.07)^20 = $13,254 (tax-free). RRSP advantage: $15,662 − $13,254 = $2,408 due to 12.43pp rate drop. At equal rates (30%/30%): RRSP and TFSA produce identical terminal values.
Edge cases
- RRSP withdrawals can trigger OAS clawback at $95,323+ and GIS clawback for low-income retirees — effectively raising the true r_future beyond the statutory marginal rate.
- Employer RRSP matching is an immediate 100% return that overrides rate-comparison math — always capture the full match.
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About this site
Every number on this site is sourced from CRA publications, the Income Tax Act, or provincial fiscal releases. We show the math, cite the sources, and never tell you what to do with your money.