In short
In 2026 the RRSP limit is 18% of 2025 earned income up to $33,810 and the TFSA limit is $7,000 ($109,000 cumulative since 2009). An RRSP wins when your marginal rate today is higher than the rate you will pay on withdrawal and you reinvest the refund; a TFSA wins when the rate is the same or lower, you may need the money early, or RRIF income would trigger the OAS clawback above $95,323. A $75,000 Ontario earner contributing $5,000 to an RRSP gets $1,632.50 back; first-time buyers should fill the $8,000-a-year FHSA before either.
An RRSP gives you a tax deduction now and taxes the withdrawals later; a TFSA gives no deduction but never taxes the growth. Which one wins is not a matter of opinion: it depends on your marginal tax rate today against the rate you expect when the money comes out, and on what you do with the refund. This guide covers the 2026 contribution limits, the marginal-rate logic, the withdrawal rules that catch people out, the FHSA for first-time buyers and how each account interacts with the Old Age Security clawback. By the end you will be able to decide where the next $5,000 should go, with the arithmetic for a $75,000 Ontario earner as a template.
2026 contribution limits
| Account | 2026 limit | Room builds from | Over-contribution penalty |
|---|---|---|---|
| RRSP | 18% of 2025 earned income, max $33,810, less pension adjustment | Earned income; unused room carries forward indefinitely | $2,000 tolerance, then 1% a month |
| TFSA | $7,000 (cumulative $109,000 since 2009) | Every year from age 18, earned income not required | 1% a month on the excess |
| FHSA | $8,000 a year, $40,000 lifetime | Opening the account; one year of unused room carries forward (max $16,000 in a year) | 1% a month on the excess |
RRSP contributions made in the first 60 days of 2027, up to 2 March 2027, can be deducted on the 2026 return. TFSA room is restored the January after a withdrawal, not immediately; re-contributing in the same year uses current room and is the most common cause of a penalty. The TFSA calculator works out room from the year you turned 18.
Deduction now versus tax-free later
An RRSP contribution is deducted from taxable income, so it saves tax at your combined federal and provincial marginal rate. The money then grows untaxed inside the plan and every dollar withdrawn is taxed as ordinary income, whatever it was earned as. A TFSA contribution gets no deduction; growth and withdrawals are tax-free, and withdrawals are not income for any benefit test.
If the tax rate on the way out equals the rate on the way in, the two accounts produce identical after-tax results, provided the RRSP refund is reinvested. The RRSP wins when the withdrawal rate is lower than the contribution rate, which is the normal case for someone in a middle or high bracket who will retire on less. The TFSA wins when the withdrawal rate is the same or higher, which applies to low earners today, to anyone who may need the money before retirement, and to retirees whose RRIF income would trigger OAS clawback.
Ontario marginal rates in 2026
| Taxable income | Federal bracket | Ontario bracket | Combined marginal rate |
|---|---|---|---|
| $50,000 | 14% | 5.05% | 19.05% |
| $75,000 | 20.5% | 9.15% | 29.65% |
| $100,000 | 20.5% | 9.15% + surtax | 31.48% |
| $120,000 | 26% | 11.16% + surtax | 43.41% |
| $150,000 | 26% | 11.16% + surtax | 44.97% |
The rates above come from the 2026 federal brackets (14% to $58,523, 20.5% to $117,045, 26% to $181,440) and Ontario’s (5.05% to $53,891, 9.15% to $107,785, 11.16% to $150,000), with the Ontario surtax of 20% and 36% applying once provincial tax passes $5,818 and $7,446. Other provinces differ; the income tax calculator gives the marginal rate for every province.
Worked example: $75,000 in Ontario, $5,000 to invest
RRSP. Federal and Ontario tax on $75,000 (after the $16,452 federal and $12,989 Ontario basic personal amounts) is $9,267.73 + $3,997.02, plus a $750 Ontario Health Premium: $14,014.75. On $70,000 it is $8,242.73 + $3,539.52 + $600 = $12,382.25. The contribution therefore returns $1,632.50: $1,482.50 at the 29.65% marginal rate plus $150 because the health premium steps down below $72,000. Net cost $3,367.50. At 6% for 25 years the $5,000 grows to $21,459. Withdrawn at a 20% retirement rate it leaves $17,167; at 29.65% it leaves $15,097; at 43% it leaves $12,232.
TFSA. The same $5,000 grows to $21,459 with no tax at all. But that is not a like-for-like comparison, because the TFSA route costs $5,000 of after-tax money while the RRSP route costs $3,367.50. Putting the equivalent $3,367.50 in the TFSA produces $14,453.
Verdict. With the refund reinvested, the RRSP beats the TFSA at this income if the retirement marginal rate is below about 32%, and the gap is roughly $2,700 at a 20% retirement rate. If the refund is spent, the TFSA wins at any retirement rate above zero. CPP (5.95% to $74,600) and EI (1.63% to $68,900) are unchanged by either choice.
Withdrawal rules
RRSP withdrawals are added to income in the year taken, with withholding of 10% up to $5,000, 20% to $15,000 and 30% above (Quebec differs), and the room is gone for good. The plan must be converted to a RRIF or annuity by 31 December of the year you turn 71, after which minimum withdrawals start at 5.28% at 71 and rise each year. The Home Buyers’ Plan allows a tax-free withdrawal of up to $60,000 for a first home, repaid over 15 years. TFSA withdrawals are free of tax and of consequence, and the amount is added back to room on 1 January.
FHSA for first-time buyers
The First Home Savings Account combines the two: contributions are deductible like an RRSP, and a qualifying withdrawal to buy a first home is tax-free like a TFSA, with nothing to repay. The limits are $8,000 a year and $40,000 lifetime per person, so a couple can shelter $80,000, and each can also draw a $60,000 Home Buyers’ Plan from their RRSPs for the same purchase. Five years of $8,000 at $85,000 of Ontario income produces about $11,900 of refunds and roughly $46,400 of tax-free down payment at 5% growth. If you never buy, the balance transfers to an RRSP without using RRSP room, so there is no downside to opening one before anything else. For anyone who qualifies, the FHSA comes first, the RRSP second and the TFSA third while saving for a home. See the FHSA calculator.
The OAS clawback
From age 65, Old Age Security is reduced by 15% of net income above $95,323 for the 2026 tax year, and disappears entirely around $154,700 for ages 65 to 74. RRIF withdrawals, pensions, CPP and investment income all count; eligible dividends count at their grossed-up value, 138% of the cash. A retiree at $120,000 loses about $3,700 of the roughly $8,900 annual pension. TFSA withdrawals do not count, which is why large RRSPs can be a problem for high-income retirees and why drawing from the TFSA last, or deliberately melting down the RRSP in low-income years before 65, is standard planning. The OAS clawback calculator shows the effect of moving income between accounts.
Common mistakes
- Spending the RRSP refund. The deduction is a deferral, not a gift. Without reinvesting it, the RRSP is a worse TFSA.
- Using an RRSP at a 19% marginal rate. At $50,000 of Ontario income the deduction is worth 19.05%, below the rate most people pay in retirement once CPP, OAS and a RRIF stack up. Use the TFSA now and carry the RRSP room forward to higher-earning years; you can also contribute now and claim the deduction later.
- Re-contributing a TFSA withdrawal in the same year. Room comes back the following January; CRA charges 1% a month on the excess in between.
- Trusting CRA My Account room blindly. It usually lags your latest transactions by a year.
- Ignoring the pension adjustment. A workplace pension reduces RRSP room, sometimes to very little.
Frequently asked questions
Should I choose an RRSP or a TFSA?
RRSP if your marginal rate today is higher than it will be when you withdraw and you will reinvest the refund; TFSA if the rate is the same or lower, or you may need the money early. Many people use both, with the refund going into the TFSA.
What is the RRSP deadline for the 2026 tax year?
2 March 2027. Contributions in the first 60 days of 2027 can be deducted on the 2026 return or carried forward to a later year.
What is the TFSA limit for 2026?
$7,000, unchanged from 2024 and 2025. Someone 18 or older in 2009 who has never contributed has $109,000 of room.
Does an RRSP contribution reduce CPP or EI?
No. CPP and EI are calculated on gross employment income; only income tax falls.
Can I have an FHSA and an RRSP?
Yes. They have separate room, both are deductible, and both can fund the same first-home purchase, the FHSA tax-free and the RRSP through the $60,000 Home Buyers’ Plan.
Sources
- CRA — RRSP, TFSA and FHSA limits (2026 limits as published, citing CRA) (checked 26 October 2026)
- CRA — Federal and provincial income tax rates 2026; T4127 payroll formulas (checked 26 October 2026)
- Service Canada — OAS pension recovery tax (checked 26 October 2026)
- CRA — RRIF minimum withdrawal factors and withholding (checked 26 October 2026)