RRSP and TFSA are Canada's two main tax-advantaged savings accounts, and they work in opposite directions on tax — the right choice for your next dollar of savings depends mainly on your current tax bracket versus your expected bracket later.
How each account works
RRSP (Registered Retirement Savings Plan): contributions reduce your taxable income now (you get a tax deduction when you contribute), but withdrawals in retirement are fully taxed as income. TFSA (Tax-Free Savings Account): contributions don't reduce taxable income now, but growth and withdrawals are entirely tax-free, forever.
The core decision framework
An RRSP contribution effectively defers tax from now until retirement — it's advantageous if your tax rate now is higher than your expected rate in retirement, since you get the deduction at your current (higher) rate and pay tax later at a (hopefully lower) rate. A TFSA makes more sense if you expect a similar or higher tax rate in retirement, or if you want tax-free flexibility to withdraw funds before retirement without any tax consequence.
Contribution room works differently
RRSP room is 18% of the previous year's earned income, capped at an annual dollar limit ($33,810 for 2026). TFSA room is a flat dollar amount for every eligible adult regardless of income ($7,000 for 2026) — someone earning $30,000 and someone earning $300,000 get the identical TFSA room.
Unused room carries forward for both
Neither account's unused contribution room expires — it accumulates indefinitely. Someone who hasn't maximized either account in past years likely has substantially more available room than just the current year's new allocation, which is worth checking via CRA My Account before assuming your room is limited to this year's figure alone.
A practical starting point
Many financial advisors suggest TFSA first for lower earners or anyone building an emergency fund (since TFSA withdrawals are penalty-free and don't get taxed), and RRSP prioritization increasing as income and tax bracket rise — though individual circumstances, including employer RRSP matching if available, can change this.
See your specific RRSP room and estimated tax savings with the Canada RRSP & TFSA Calculator.