RRSP or TFSA — which one first?

How the comparison actually works

A dollar you put in a TFSA has already been taxed. It grows untaxed and comes out untaxed. A dollar you put in an RRSP has not been taxed — you get a deduction — so $10,000 of after-tax money actually buys a larger RRSP contribution once you reinvest the refund. Then the whole balance is taxed on the way out.

Run the algebra and the two are identical when your tax rate is the same at both ends. The RRSP wins when your rate falls, the TFSA wins when it rises. That is the entire mechanism, and it is why a blanket "max your RRSP" is bad advice for someone earning $45,000.

Three things that beat the arithmetic

• Employer matching. A 50% match is a 50% instant return. Capture it before anything on this page.
• Benefit clawbacks. RRSP and RRIF withdrawals count as income and can claw back Old Age Security or the Guaranteed Income Supplement. TFSA withdrawals do not. For a modest-income retiree this can flip the answer entirely.
• Deduction timing. You may contribute to an RRSP now and claim the deduction in a later year. If a raise is coming, holding the deduction is free money.

This calculator is a starting point, not advice. It ignores inflation, contribution limits, the Home Buyers' Plan, spousal RRSPs and the FHSA — which for a first-time buyer usually beats both.