The one-sentence difference
An RRSP lets you pay tax later; a TFSA means you already paid it. That is the whole distinction. Inside either account the investments can be identical, the growth is untaxed while it stays put and the difference only shows up at the two doorways: an RRSP dollar earned you a tax deduction going in and gets taxed as regular income coming out, while a TFSA dollar earned no deduction going in and comes out untouched.
Before retirement, the debate is mostly about which doorway costs less. After retirement, the differences multiply, because the two accounts start behaving very differently.
What changes after you retire
The RRSP has an expiry date. By December 31 of the year you turn 71 it must be converted, most commonly into a RRIF, and from the following year a minimum withdrawal is forced out annually: 5.28% of the account at 71, with the percentage rising as you age. Every withdrawn dollar is fully taxable and counts toward every income test, including the OAS clawback that starts at $95,323 of net income in 2026.
The TFSA changes nothing at retirement. There is no forced conversion, no minimum withdrawal and no age at which contributions must stop. You take money out when you choose, none of it is taxable and none of it appears in the income the government tests for OAS or GIS. In practice the RRSP becomes the scheduled, taxable engine of retirement income and the TFSA becomes the flexible, invisible reserve.
The 2026 contribution room
The two accounts also earn room differently. TFSA room arrives just for being an adult resident of Canada; RRSP room has to be earned by working.
- TFSA: $7,000 of new room for 2026. Someone eligible since the TFSA began in 2009 who never contributed has $109,000 of cumulative room. Withdrawn amounts are added back to your room the following January 1.
- RRSP: 18% of the previous year's earned income, to a 2026 maximum of $33,810. Contributions are allowed until December 31 of the year you turn 71, after which the TFSA is the only registered account still accepting money.
Why the comparison flips with your tax bracket
The classic rule of thumb: the RRSP comes out ahead when your tax rate at contribution is higher than your tax rate at withdrawal, because you deducted at the high rate and repay at the low one. If the rates are equal the two accounts finish in a mathematical tie. If your rate in retirement turns out higher, the RRSP dollar was the expensive one.
Retirement adds a wrinkle the rule of thumb misses: your effective rate on a RRIF dollar is not just your tax bracket. If that dollar also triggers 15 cents of OAS clawback, or reduces GIS by roughly 50 cents, the true cost of withdrawing it is higher than the bracket suggests. TFSA dollars never carry those side effects, which is why the TFSA tends to matter more, not less, as income tests enter the picture.
TFSA withdrawals and the re-contribution trap
Taking money out of a TFSA is painless, but putting it back has a timing rule that catches people every year. Room from a withdrawal is not restored immediately: it comes back on January 1 of the following year.
If you withdraw money and re-contribute it in the same calendar year without unused room to cover it, the CRA treats the re-deposit as an over-contribution and charges a penalty tax for every month it stays in. The safe habit is simple: money withdrawn this year goes back next year, unless you know you have spare room right now.
What happens to each account at death
The endings differ too, though for couples both can pass smoothly. An RRSP or RRIF can roll to a surviving spouse tax deferred, so no tax comes due until the survivor withdraws the money; left to anyone else, the full remaining value is generally taxed as income on the final return. A TFSA passes cleanest when a spouse is named as successor holder: the account simply becomes theirs, still tax free, without using any of their own room. Naming those designations is a few minutes of paperwork that decides how much of each account actually reaches the family.
A worked example
Gord wants to spend $10,000 and sits in a 30% combined tax bracket. To net $10,000 from his RRIF he has to withdraw roughly $14,300, because about 30 cents of every dollar goes to tax. The same $10,000 from his TFSA costs exactly $10,000. And the difference is bigger than the tax: the $14,300 RRIF withdrawal is added to the income tested for the OAS clawback and GIS, while the TFSA withdrawal adds nothing at all.
Calculated with the same math the TruePath engine uses.
How TruePath shows this
TruePath models both accounts by their real rules: RRSP room accrues from income, the account converts to a RRIF on schedule, the minimums flow out and get taxed each year, and TFSA withdrawals stay off the income tests entirely. You can see how a plan that leans on one account or the other changes lifetime tax, the OAS kept and what each account is worth in any future year, for each spouse.
Related questions people ask
Do TFSA withdrawals affect OAS or GIS?
No. TFSA withdrawals are not taxable income and never count in the tests for the OAS clawback or GIS. That invisibility is the TFSA's biggest retirement advantage over RRIF income, which counts in full.
Do I have to close my RRSP at 71?
You must convert it by December 31 of the year you turn 71, most often into a RRIF, though an annuity is also an option. The money stays tax deferred; what changes is that a minimum amount, 5.28% at age 71 and rising, must be withdrawn and taxed each year afterward.
Can I keep contributing to a TFSA after I retire?
Yes, for life. TFSA room does not depend on working: $7,000 of new room arrives in 2026 regardless of income or age. RRSP contributions, by contrast, require earned income and end after the year you turn 71.
When can I put withdrawn TFSA money back?
On January 1 of the year after the withdrawal, when the room is restored. Re-contributing in the same calendar year is only safe if you have unused room to absorb it; otherwise the CRA charges an over-contribution penalty for each month the excess remains.
Why is tax taken off my RRSP withdrawal before I receive it?
That is withholding tax, a prepayment. Outside Quebec the rates are 10% on withdrawals up to $5,000, 20% from $5,001 to $15,000 and 30% above $15,000. Your final tax is settled on your return, where you may owe more or get some back depending on your total income.
Sources
This page is general education about Canadian retirement rules, not personalised financial advice. Figures are for the 2026 tax year and change with government updates.