In 2025, Canadian investors continue to rely on the RRSP and TFSA as the primary vehicles for tax-efficient investing. But which is better for your specific goals?
TFSA Overview:
- 2025 Limit: $7,000
- Contributions are not tax-deductible.
- Growth and withdrawals are completely tax-free.
- Ideal for short-to-mid-term goals or flexible investing.
RRSP Overview:
- 2025 Limit: 18% of 2024 income, up to $32,490
- Contributions are tax-deductible, reducing your taxable income.
- Withdrawals are taxed as income.
- Designed for retirement savings.
How to Choose:
- Use a TFSA if you expect your income (and tax rate) to stay the same or rise in the future.
- Use an RRSP if you’re in a high tax bracket now and expect to be in a lower one when you retire.
- Use both if possible: contribute to your RRSP and reinvest your tax refund into your TFSA.
The TFSA is more flexible, while the RRSP gives a bigger immediate tax break. Use them strategically to match your goals and timeline.