If you can't max out both, where should your next dollar go? The key question is simple: will your tax rate be higher now or when you withdraw?
When the RRSP usually wins
- You're in a higher bracket today (in Alberta, combined marginal rates reach 36% above $117,045 and 48% at the top).
- You expect lower income in retirement.
- You'll reinvest the refund.
When the TFSA usually wins
- Your income is modest — Alberta's new 8% bracket means the combined rate on the first ~$58,500 is just 22%.
- You'll want flexibility to withdraw without tax.
- You expect to receive OAS or GIS — TFSA withdrawals don't count as income.
Buying your first home? Consider the FHSA first
The First Home Savings Account combines the best of both: contributions are deductible like an RRSP, and qualifying withdrawals are tax-free like a TFSA. You can contribute $8,000 a year, up to $40,000 lifetime, and you can also use the RRSP Home Buyers' Plan (up to $60,000).
The bottom line
Many families use both: RRSP for high-income years and TFSA for flexibility. Use our RRSP refund estimator to see what a contribution is worth to you.
This article is general information, current as of its publication date, and is not personal financial, tax or legal advice.