The core difference
TFSA contributions are made with after-tax dollars and qualifying withdrawals are tax-free. RRSP contributions can generally be deducted from taxable income, while withdrawals are generally taxable.
When an RRSP can be especially attractive
An RRSP can be powerful when the contribution deduction is taken at a relatively high marginal tax rate and withdrawals later occur at a lower rate. Reinvesting the tax refund also matters.
When a TFSA can be especially attractive
A TFSA offers flexible tax-free withdrawals and does not create taxable income when money comes out. That flexibility can be valuable for emergency funds, medium-term goals and retirement spending.
A fair comparison
Compare the accounts on an equal after-tax cost basis. If you contribute $10,000 to an RRSP and spend the refund, that is not the same out-of-pocket commitment as putting $10,000 into a TFSA.
Compare RRSP and TFSA scenarios →