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When to Invest in RRSPs Verses when to Invest in TFSAs

An RRSP contribution is most tax advantageous if made during your highest earning years and withdrawn in your lowest earning years.  Otherwise, a TFSA may provide the better investment vehicle from a tax perspective. So when should you invest in RRSP vs. a TFSA?


Registered Retirement Savings Plans (RRSPs) offer an immediate and potentially a long-term tax break.  To understand this, recall that Canada has a progressive tax rate – as you move to higher tax brackets, you pay a higher rate of tax.  A contribution to your RRSP is an immediate deduction to your income – and the deduction starts at your highest tax bracket.  Withdrawals from your RRSP are added back to your income in the year withdrawn – increasing your income in that year.

Your contribution limit is cumulative and includes up to 18% of your earned income from the previous year to a maximum of $27,830 in 2021 (or $29,210 in 2022).  Since the contribution limits are cumulative and carried forward indefinitely, you should verify what your balance is each year to maximize your planning and avoid penalties for over contributions.  Your CRA notice of assessment will detail the total contribution limit available.  Note Over contribution penalties are 1% per month. 

To attain the most tax effective RRSP – invest into the plan when your income is at its highest during your earning years and make withdrawals when your income is at its lowest.  This can be done by looking at overall anticipated income levels and making estimates over a period of time.

Changes in tax rates will affect your tax savings.  As such, the timing of your RRSP investment is important, especially in years there are changes at either the provincial or federal tax rates.  An investment in January or February this year can be deducted in either your 2021 or 2022 personal tax return.

Making a contribution in January of February allows time to calculate what year you wish to make that deduction. 


Tax free savings accounts were introduced in 2009 and allowed contributions of $5,000 annually for years 2009 through 2012 and $5,500 for years 2013 and 2014 and $10,000 for 2015 – returning to a contribution limit of $5,500 for 2016, 2017 and 2018 and $6,000 for 2019 through 2022 and $6,500 for 2023.  The maximum contributions for all years up to 2023 total $88,000 per individual over the age of 18.  If you were over the age of 18 in 2009 and have never made a TFSA contribution, you can contribute up to $88,000.

Contributions are not tax deductible.  However, you will not pay any tax on income or gains from your TFSA account or on withdrawals from this account.  Withdrawals from your TFSA will also not be considered for income tested eligibility such as OAS claw backs – and withdrawals can be recontributed in subsequent years. 

When selecting your investment in a TFSA – you likely do not want your TFSA to hold investments that hold foreign dividend type of income – withholding tax is paid on investments held in TFSAs (and RESPs) – and you cannot claim an offsetting foreign tax credit because you pay no Canadian tax on TFSAs (or RESPs).  Effective investments for tax purposes within your TFSA would include Canadian interest generating income (although these are not necessarily investments that net you the most return). 

Consider investing in a TFSA for tax deferred growth when you are in a lower tax bracket.  This will preserve your RRSP room for when you will get a higher tax deduction.  The TFSA is also ideal if saving for a home or vehicle purchase – where the withdrawal may be made tax free regardless of if you are in a higher earning year. 

The team at Shajani LLP CPAs would be glad to provide you with a consultation on what investment vehicle would be most tax advantageous in your circumstances. 

Year Contribution
2009 $                   5,000 $      5,000
2010 $                   5,000 $    10,000
2011 $                   5,000 $    15,000
2012 $                   5,000 $    20,000
2013 $                   5,500 $    25,500
2014 $                   5,500 $    31,000
2015 $                 10,000 $    41,000
2016 $                   5,500 $    46,500
2017 $                   5,500 $    52,000
2018 $                   5,500 $    57,500
2019 $                   6,000 $    63,500
2020 $                   6,000 $    69,500
2021 $                   6,000 $    75,500
2022 $                   6,000 $    81,500
2023 $                   6,500 $    88,000

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.

Nizam Shajani, Partner, LLM, CPA, CA, TEP, MBA

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani CPA.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.