If your tax rate today is higher than you expect it to be when you take the money out, an RRSP usually comes out ahead. If your rate is lower now, or you may need the money before retirement, a TFSA usually wins. For 2026 the RRSP dollar limit is $33,810 and the TFSA limit is $7,000, and you can use both in the same year.
This guide compares the two accounts side by side, shows what an RRSP deduction is worth at different incomes in Ontario, and covers the rules that catch people out: over-contributions, withdrawals, and the March 1, 2027 deadline for 2026 RRSP contributions.
Table of Contents
- How an RRSP and a TFSA work
- RRSP vs TFSA: the 2026 rules side by side
- RRSP or TFSA: which should you fund first?
- Deadlines and limits for the 2026 tax year
- Withdrawals, government benefits and retirement
- If you own a corporation or are self-employed
- Common mistakes to avoid
- How BBA Tax helps
- Frequently Asked Questions
Key Takeaways
- Your 2026 RRSP limit is 18% of your 2025 earned income, up to $33,810, minus any pension adjustment, plus unused room from earlier years.
- The 2026 TFSA limit is $7,000. If you have been eligible every year since 2009 and never contributed, your total room is $109,000.
- An RRSP deduction is worth the most when your tax rate now is higher than it will be when you withdraw.
- TFSA withdrawals are tax-free and do not affect federal income-tested benefits such as Old Age Security and the Guaranteed Income Supplement.
- RRSP contributions for the 2026 tax year can be made until March 1, 2027.
How an RRSP and a TFSA work
Both accounts shelter investment growth from tax. The difference is timing: an RRSP gives you the tax break now, and a TFSA gives it to you later.
RRSP: deduct now, pay tax later
RRSP contributions reduce your taxable income for the year you deduct them, which is why they often produce a refund. Investments grow without tax while they stay in the plan. Every dollar you withdraw is added to your income for that year, and your financial institution withholds tax at source: 10% on withdrawals up to $5,000, 20% from $5,000 to $15,000, and 30% above $15,000 (outside Quebec).
You can contribute to your own RRSP until December 31 of the year you turn 71. In that year you have to withdraw the funds, transfer them to a RRIF, or use them to buy an annuity.
TFSA: no deduction now, no tax later
TFSA contributions are not deductible. In exchange, interest, dividends and capital gains earned in the account are generally tax-free, even when you withdraw them. Anything you take out is added back to your contribution room on January 1 of the next year. You can open a TFSA once you are 18, a resident of Canada and have a valid social insurance number.
RRSP vs TFSA: the 2026 rules side by side
Here is how the two accounts compare for the 2026 tax year, based on the CRA’s published RRSP and TFSA limits.
| Feature | RRSP | TFSA |
|---|---|---|
| 2026 contribution limit | 18% of 2025 earned income, up to $33,810, minus any pension adjustment, plus unused room | $7,000, plus unused room and anything you withdrew last year |
| Tax deduction | Yes, contributions reduce taxable income | No |
| Growth inside the account | Tax-deferred | Tax-free |
| Withdrawals | Added to income and taxed; tax withheld at source | Tax-free; the room comes back on January 1 of the next year |
| Federal income-tested benefits | Withdrawals count as income and can reduce them | Not affected |
| Over-contributions | 1% a month on contributions more than $2,000 over your limit | 1% a month on any excess |
| Deadline for 2026 | March 1, 2027 | None; unused room carries forward |
| Age rules | Contribute until the end of the year you turn 71 | Open at 18 with a valid SIN |
Your RRSP deduction limit is on your latest notice of assessment, in your CRA account, and on Form T1028. Your TFSA room is in your CRA account under savings and pension plans. Keep your own record of contributions and withdrawals during the year as well, so you never guess.
RRSP or TFSA: which should you fund first?
Compare your marginal tax rate today with the rate you expect when you withdraw. The RRSP deduction saves tax at today’s rate, and withdrawals are taxed at tomorrow’s.
Here is what a $1,000 RRSP deduction is worth in 2026 for an Ontario resident, using the 2026 federal and Ontario brackets. If your taxable income is under $53,891, you are in the lowest federal (14%) and Ontario (5.05%) brackets, so the deduction saves about $190. In the federal 20.5% bracket ($58,523 to $117,045), it saves $205 of federal tax plus Ontario tax at 9.15% or more, so roughly $300 or more.
An RRSP usually comes out ahead when
- your income is in a higher bracket now than you expect it to be in retirement;
- you will invest the refund rather than spend it;
- you plan to use the Home Buyers’ Plan, which lets you withdraw up to $60,000 from your RRSPs toward a qualifying home; or
- a spousal RRSP could even out retirement income between you and your partner (our guide to income splitting in Canada explains how).
A TFSA usually comes out ahead when
- your income is in the lowest brackets, so a deduction is worth less;
- you expect your income to be the same or higher when you withdraw;
- you may need the money before retirement, for an emergency fund or a large purchase; or
- you want retirement income that will not reduce income-tested benefits such as the Guaranteed Income Supplement.
You do not have to pick only one: you can contribute to the RRSP for the deduction, then put the refund into the TFSA. If you are saving for a first home, look at a First Home Savings Account too. FHSA contributions are deductible like an RRSP, qualifying withdrawals to buy a first home are tax-free, and the limits are $8,000 a year and $40,000 for life.
Not sure where your next dollar should go? BBA Tax can look at your 2026 income and show you what an RRSP deduction is actually worth before you contribute. Book a free intro call.
Deadlines and limits for the 2026 tax year
RRSP contributions made in 2026, or in the first 60 days of 2027, can be deducted on your 2026 return. The 60th day of 2027 is Monday, March 1, so that is the 2026 deadline. The CRA had not posted the date yet in October 2026, so confirm it on its RRSP important dates page early in the new year.
You do not have to deduct a contribution in the year you make it. Unused contributions stay available to deduct in a later year, which can make sense if you expect a raise or a higher-income year soon. The CRA has already published the 2027 RRSP dollar limit: $35,390.
TFSA room has no deadline. The $7,000 for 2026 was added on January 1, 2026, and any room you do not use carries forward. The annual limits since 2009 add up to $109,000 for someone who has been eligible every year and never contributed. The 2027 TFSA limit had not been announced as of early October 2026. For other key dates, see our Canadian tax deadlines for the 2026 tax year.
Withdrawals, government benefits and retirement
RRSP withdrawals are taxable income and TFSA withdrawals are not, and that difference matters most in retirement, when government benefits are income-tested.
- RRSP and RRIF withdrawals are taxable income. They raise your net income, which the CRA uses to work out income-tested benefits and the Old Age Security recovery tax (often called the OAS clawback).
- TFSA withdrawals are not income. The CRA says income earned in a TFSA, and withdrawals from it, do not affect federal income-tested benefits such as OAS, the GIS, the Canada child benefit and EI.
- Putting a TFSA withdrawal back in the same year can cost you. Withdrawals only become new room on January 1 of the next year, and any excess in the account is taxed at 1% a month for as long as it stays.
- Early RRSP withdrawals are taxed in the year you take them. The amount withheld may not cover the full tax, so you can owe more when you file.
If you own a corporation or are self-employed
RRSP room is based on earned income, and not every kind of income counts.
Employment income, net self-employment income and net rental income all count as earned income for RRSP purposes. Dividends and interest do not. An incorporated owner who pays themselves only dividends builds no new RRSP room, while a salary does. That is one of the trade-offs when deciding how to pay yourself, and our salary vs dividend calculator for Ontario lets you compare the two.
If you are self-employed, your 2026 RRSP limit is based on your 2025 net business income. A TFSA can also work as a reserve for tax instalments or a slow month, since the money comes out tax-free.
Common mistakes to avoid
Each of these mistakes involves contribution room or timing, and each can cost you tax or a penalty.
- Re-contributing a TFSA withdrawal in the same calendar year without enough room.
- Contributing more than $2,000 over your RRSP deduction limit, which triggers a 1% monthly tax on the excess.
- Assuming the 2027 TFSA limit before the CRA announces it.
- Withdrawing from a spousal RRSP in a year your partner contributed, or within the two years after, which taxes the withdrawal in the contributor’s hands.
- Contributing after March 1, 2027 and expecting the deduction on your 2026 return.
For other ways to lower your bill this year, see our guide to reducing your personal taxes in Canada.
How BBA Tax helps
BBA Tax prepares personal tax returns for individuals and families in Ottawa, and remotely across Canada. As part of your return we check your RRSP deduction limit, decide with you whether to deduct contributions now or carry them forward, and watch for RRSP and TFSA over-contributions. Learn more about our personal tax services.
If you own a corporation, your RRSP room depends on how you pay yourself. Our tax planning for incorporated business owners looks at salary, dividends, RRSPs and TFSAs together.
Frequently Asked Questions
What is the RRSP contribution limit for 2026?
For 2026 it is 18% of your 2025 earned income, up to a maximum of $33,810, minus any pension adjustment from an employer plan, plus unused room carried forward from earlier years. Your exact figure is on your latest notice of assessment and in your CRA account. The dollar limit rises to $35,390 for 2027.
How much TFSA room do I have in 2026?
The 2026 TFSA dollar limit is $7,000. Your total room is that amount plus any unused room from earlier years and anything you withdrew in the previous year. If you have been eligible every year since 2009 and have never contributed, your room adds up to $109,000. Check your CRA account for your own figure.
What is the RRSP deadline for the 2026 tax year?
Contributions made by March 1, 2027 can be deducted on your 2026 return. That date is the 60th day of 2027, which is the CRA’s rule for the deadline. The CRA had not posted the 2026 date as of October 2026, so check its RRSP dates page before you rely on it.
Can I contribute to an RRSP and a TFSA in the same year?
Yes. The two accounts have separate contribution room, so you can use both in the same year as long as you stay within each limit. One approach is to contribute to the RRSP and put the tax refund into the TFSA, but the right split depends on your income now and what you expect later.
Do TFSA withdrawals affect Old Age Security?
No. The CRA says income earned in a TFSA, and withdrawals from it, do not affect your eligibility for federal income-tested benefits and credits, including Old Age Security and the Guaranteed Income Supplement. RRSP and RRIF withdrawals are different: they count as income and can reduce those benefits.
