Should you contribute to your TFSA or your RRSP?
Discover what makes RRSPs and TFSAs different. Plus, we answer three key questions to help you decide which works best for you.
CIBC
Jan. 20, 2026
4-minute read
Are you unsure whether to put your money in a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA)? You’re not alone. Both are valuable tools Canadians can use to help save for the future and potentially reduce taxes, but each works a little differently.
TFSAs are a great way to save and invest for all kinds of goals. Once you contribute after-tax amounts to a TFSA, the income within the TFSA is tax-free. And you won’t pay tax on amounts you withdraw from a TFSA, if you follow the rules.
RRSPs are a powerful investment tool that can help you reach your goals. Many people use RRSPs to save for retirement, but those funds may also be used to buy or build a home, or to finance education costs for yourself or your partner.
Here are the primary differences between a TFSA and an RRSP:
| TFSA |
RRSP |
Your TFSA contribution room is the total of:
- the current year’s TFSA dollar limit,
- plus any unused contribution room from previous years,
- plus any withdrawals made the previous year,
- minus any contributions already made this year.
The 2025 and 2026 TFSA dollar limit is $7,000. To find out your TFSA contribution room, check My Account with Canada Revenue Agency Opens a new window.. |
Your RRSP contribution room is the total of:
- the current year’s RRSP dollar limit or 18% of the prior year’s earned income, whichever is lower,
- plus or minus any applicable adjustments for pensions,
- plus unused contribution room from previous years.
The 2025 RRSP dollar limit is $32,490 and the 2026 limit is $33,810. To find out your RRSP contribution room, check your previous year’s Notice of Assessment, or check My Account with Canada Revenue Agency Opens a new window.. |
| No tax deduction for contributions. |
Tax deduction may be available for contributions. |
| No tax on withdrawals, if the plan rules are followed. |
Withdrawals are taxable (certain exceptions are made for the Home Buyers' Plan or Lifelong Learning Plan, if repaid following the rules).
|
| Amounts withdrawn, except those made to correct over-contributions, can be re-contributed in a later year. |
Amounts withdrawn cannot be re-contributed in a later year. |
| A wide range of investments are permitted, including mutual funds, stocks, bonds and GICs. |
A wide range of investments are permitted, including mutual funds, stocks, bonds and GICs. |
You can use TFSAs and RRSPs for income-splitting. You can give your spouse or common-law partner money to contribute to their TFSA, and any income earned in the plan isn’t attributed back to you. Your spouse or common-law partner can make tax-free withdrawals at any time.
Are you saving for a long-term or short-term goal?
RRSPs were designed primarily to provide for a long-term goal — retirement. Because you get a tax deduction for contributing, withdrawals are taxable unless they're made under the Home Buyers' Plan or Lifelong Learning Plan and repaid following the rules. In many cases, however, withdrawals are likely to be made when you’re no longer working and, therefore, may be taxed at a lower rate.
TFSAs, on the other hand, have the flexibility to accommodate short-term goals more easily. While there is no deduction permitted for the contribution, if you follow the rules, there is no tax on income, and growth in the plan and amounts you withdraw are tax-free, at any time for any reason. In addition, you can re-contribute the full amount of your withdrawal in a subsequent year, except for withdrawals made to correct over-contributions.
Are you looking for an effective way to split income with your spouse or common-law partner who's taxed at a lower rate than you?
Both a TFSA and RRSP can be used for income-splitting. You can give your spouse or common-law partner money to contribute to their TFSA, and any income earned isn't attributed back to you. Your spouse or common-law partner can make tax-free withdrawals at any time.
You can also make contributions to a spousal or common-law partner RRSP and claim a deduction against your own income. The contributions you make will reduce your own RRSP contribution room. Your spouse or common-law partner will be the owner of the plan and will generally pay tax on withdrawals from the plan, although you may need to pay tax on withdrawals made in the year of a contribution or in the prior 2 years. Other withdrawals made from the plan by your spouse or common-law partner, including income and gains earned on the initial contribution, will be taxable in their hands.
Do you want to maintain your eligibility for income-tested federal government benefits?
Because amounts withdrawn from a TFSA don’t count as income, they don't affect eligibility for income-tested federal government benefits, such as the Canada Child Benefit, GST/HST credit, age credit or Old Age Security benefits, including the Guaranteed Income Supplement.
The ideal strategy in most instances will be to contribute the maximum to both your TFSA and your RRSP in order to maximize potential tax benefits. If this isn't possible, then a CIBC advisor can help you decide how to allocate your contributions to make the most of both plans.
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