Canada Tax Guide
TFSA vs RRSP: which is better at your income?
The answer depends on one number: your marginal tax rate today versus your expected rate in retirement. Canada cut the bottom federal rate from 15% to 14% in 2026, which changes the math for lower earners. Use the calculator with your salary to see the exact split.
The decision by income (2026 federal rates)
| Income range | Federal marginal | Better account | Why |
|---|---|---|---|
| Under $55,000 | 14% | TFSA | RRSP deduction saves only 14 cents/$. TFSA flexibility wins. |
| $55,000 to $80,000 | 20.5% | Depends | If you expect lower retirement income, RRSP. Otherwise TFSA. |
| $80,000 to $110,000 | 26% | RRSP | Deduction saves 26 cents/$. Reinvest the refund in TFSA. |
| Over $110,000 | 29%+ | RRSP first | Every $10K saves $2,900+. Above $90K net, RRSP also reduces OAS clawback risk. |
2026 contribution limits
- TFSA: $7,000/year. Withdrawals return as room on 1 January of the next year.
- RRSP: 18% of prior-year earned income or $33,810, whichever is lower. Unused room carries forward indefinitely.
- FHSA: $8,000/year, $40,000 lifetime. Deductible like RRSP and tax-free withdrawals for a first home like TFSA. If you qualify, max this first.
The optimal strategy above $80K
Contribute to the RRSP, then reinvest the refund into your TFSA. This captures the deduction at 26%+ marginal and builds tax-free flexible savings in the TFSA simultaneously. At $90K income, a $16,200 RRSP contribution (18%) saves about $4,212 in federal tax. That refund goes straight into the TFSA.
Above $90K net income, OAS recovery tax adds an effective 15% on each dollar. RRSP contributions reduce net income and can eliminate this clawback. TFSA withdrawals never trigger it. See the full comparison in the RRSP vs TFSA guide.
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