Put the same out-of-pocket money into each account and see which leaves you with more after tax. The answer comes down to your tax rate now compared with your tax rate in retirement.
Not sure of your marginal rate? The income tax calculator shows it for your income and province.
Which wins
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RRSP, after tax
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TFSA
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Difference
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RRSP contribution per year
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Refund you get back per year
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RRSP balance before tax
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Tax owed on withdrawal
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How the comparison works
The two accounts are compared at the same cost to you. A TFSA gets your out-of-pocket amount directly. An RRSP gets a larger contribution, because the tax refund pays part of it back: at a 30% rate, a $6,000 contribution costs $4,200 after the $1,800 refund. Both then grow at the same return. At the end the TFSA is tax-free, while the RRSP is taxed on withdrawal at the rate you expect then.
That makes the whole answer a single ratio: the RRSP finishes at (1 − rate later) ÷ (1 − rate now) of the TFSA. Return and years change how big the numbers are, but not which account wins.
The three cases
Your rate now vs. later
Better choice
Why
Higher now than later
RRSP
You deduct at a high rate and pay tax at a lower one
Equal
Tie
The tax is the same size whether it is paid at the start or at the end
Lower now than later
TFSA
You pay tax now at a low rate and avoid a higher rate later
When the RRSP usually wins
People in their peak earning years who expect a lower income in retirement, and people whose current rate sits in a high bracket. A refund that you actually save is what makes this work, so the RRSP suits you best when you will reinvest it.
When the TFSA usually wins
Students and people early in their careers, anyone whose income is low now but expected to rise, and people who expect to depend on income-tested benefits in retirement, since TFSA withdrawals do not count as income. The TFSA is also flexible: money withdrawn adds back to your contribution room the next year, which makes it a better home for goals that might arrive before retirement.
The honest limits of any calculator
Nobody knows their retirement tax rate. The best you can do is run a few values, say a low, a middle and a high guess, and see how far the answer moves. If the RRSP wins in all of them, it is a safe choice. If the answer flips, the two are close and either is fine; the more important thing is that you contribute at all. Your own contribution limits also matter: check your RRSP room on CRA My Account before you contribute.
It depends on two tax rates: the rate that applies to the money now, and the rate that will apply when you withdraw it. If your rate now is higher than your rate in retirement, the RRSP comes out ahead. If it is lower, the TFSA does. If they are equal, the two accounts finish exactly tied. The calculator shows all three cases.
Why do the two accounts tie when the tax rates are equal?
An RRSP taxes you at the end and a TFSA taxes you at the start, but the arithmetic is multiplication either way. A $1,000 RRSP contribution at a 30% rate costs $700 after the refund, and if the withdrawal is also taxed at 30%, you keep 70% of whatever it grows to. A TFSA that starts with the same $700 grows by the same factor and is never taxed. Same result, so only the difference between the two rates matters.
What tax rate should I use?
Use your marginal rate, the tax on your next dollar, not your average rate. The income tax calculator shows both for your province. For retirement, estimate the marginal rate on the income you expect to withdraw, which is often lower than during your working years but not always.
Does the RRSP refund have to be reinvested?
The comparison already counts the refund: the RRSP contribution is sized so that, after the refund, it costs you the same as the TFSA contribution. That only holds if the refund is really used to pay for the contribution. If you spend the refund on something else, the RRSP effectively costs you more, and the TFSA looks better than the calculator shows.
What about income-tested benefits like OAS and the GIS?
RRSP and RRIF withdrawals count as income, so they can reduce or claw back income-tested benefits such as the Guaranteed Income Supplement and Old Age Security. TFSA withdrawals do not count. This calculator does not model that, and it can tip the choice toward the TFSA for people with modest retirement income.
What are the contribution limits?
RRSP room is 18% of last year's earned income up to an annual maximum, plus unused room carried forward, and your exact room is on your CRA My Account and your last Notice of Assessment. The TFSA has a fixed annual limit plus carried-forward room. Check both before contributing, because over-contributing is penalised.
Does this include fees, withdrawal timing or changing tax rates?
No. It assumes one steady annual return, equal contributions at the start of each year, one flat tax rate on the whole RRSP withdrawal, and no fees. Real withdrawals are taxed in brackets and rates change over time, so treat the result as a guide to the direction of the answer.
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