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RRSP vs TFSA: Which Should You Use First?
As a young Canadian, your TFSA is almost certainly the right first move. Here's exactly why, and when the RRSP makes sense.
- 1TFSA (Tax-Free Savings Account): contributions aren't deductible, but all growth and withdrawals are 100% tax-free.
- 2RRSP (Registered Retirement Savings Plan): contributions are tax-deductible, but you pay tax when you withdraw.
- 3At low income (most students and new grads), the RRSP deduction saves very little tax. The TFSA is better.
- 4TFSA contribution room accumulates every year from age 18 — the 2024 limit is $7,000/year.
- 5You can withdraw from a TFSA anytime without penalty. The room comes back the following year.
- 6Start with a TFSA. When your income exceeds ~$55,000/year, consider adding RRSP contributions.
- 7Both accounts can hold cash, GICs, ETFs, stocks — they're accounts, not investments themselves.
- 8Open a TFSA at EQ Bank, Questrade, or Wealthsimple and invest in a low-cost index ETF (e.g., XEQT or VEQT).