Despite their obvious similarities, the TFSA and the RRSP are actually quite different. Below is a quick TFSA vs. RRSP comparison that looks at purpose, contribution limits, tax benefits and withdrawal rules of each.
TFSA vs. RRSP: A micro explanation and 3 key differences.
The Registered Retirement Savings Plan (RRSP) was created by the federal government in 1957 to help working Canadians save for the future while lowering their tax burdens in the present. Its launch coincided with an uptick in Canadian life expectancy that has risen dramatically since.
You can read more about the RRSP’s origins and evolution to what it is today here.
Anyone under 71 years old who resides in Canada, has a Social Insurance Number (SIN), earned income this year and filed a tax return can open an RRSP.
The Tax-Free Savings Account (TFSA) was introduced in January 2009 as a way for Canadians to save money more efficiently. Income or gains generated from investments or funds held in a TFSA are not and never will be subject to tax.
Any Canadian resident over eighteen (or 19 in some provinces) with a valid SIN can open a TFSA.
TFSA vs. RRSP: Contribution limits
The 2025 RRSP contribution limit was 18% of 2024 earned income, up to a maximum of $32,490, plus any unused contribution room carried forward from previous years. As of now, the 2026 limit has been set at $33,810 and the 2027 limit is $35,390. A person’s limit also includes any unused room from previous years but each year will have a different amount because the calculation is based on income.
The 2025 TFSA contribution limit is $7,000 for everyone, regardless of income. This number has steadily increased from $5,000 since 2009, and all unused room can be carried over from previous years. So, someone who’s never contributed to their TFSA will have $109,000 of contribution room in 2026.
TFSA vs. RRSP: Tax benefits
The RRSP tax benefits are unique because you gain in the short- AND long-term. The immediate tax benefit of the RRSP is that contributions are treated as a pre-tax deduction: the amount you contribute is subtracted from the amount you’re taxed on. Depending on how much you put into your RRSP, you could knock yourself into a lower tax bracket and potentially wind up with a tax refund in April. The long-term tax benefit is that gains you earn from the investments in your RRSP are not taxed until you start withdrawing the money as money to live on after you retire. With a wise investment strategy and a tax-free environment to execute it, you could do a lot with your RRSP.
The TFSA tax benefits do not include the immediate tax savings offered by an RRSP. Nothing you contribute to your TFSA will impact the amount of tax you pay the year you make the contributions. But the back-end tax benefit to a TFSA is arguably greater: you never have to pay tax on the gains earned from investments in a TFSA.
TFSA vs. RRSP: Withdrawal rules
The RRSP exists to help fund your retirement. The government frowns on early withdrawal, and the penalties for withdrawing money from your RRSP reflect this attitude. However, the year you turn 71, you must convert your RRSP into a Registered Retirement Income Fund (RRIF), start withdrawing it as a liveable income and pay tax on it then.
The TFSA exists to help you save for a rainy day. You can withdraw money at any time without penalty, but this does not immediately create new available contribution room. The withdrawal amount will be added back as available contribution room the following January 1st.
TFSA vs. RRSP: Funding strategy in two sentences each.
The RRSP strategy is clear: save for retirement. With this in mind, many people choose safer growth opportunities (i.e., nothing with potential for big losses).
The TFSA strategy can change depending on your next big goal. Be it a cruise with your spouse, a kitchen reno or a quicker path to being debt-free, you’ll get there faster when your gains aren’t taxed.
With smart financial planning and a full-service team guiding you from one office, every year can be a good one for both your RRSP and TFSA.
If you don’t yet have your RRSP and TFSA contribution strategy set for 2026, get help from Optimize today.. Because a great way to create wealth with intention is to protect it with equal intentionality.
_____________________________________
Disclaimer - This article is for information purposes only and does not constitute tax or investment advice. Please consult a licensed tax professional for tax advice and a licensed Portfolio Manager or Associate Portfolio Manager of Optimize for investment advice.