RRSPs versus TFSAs

Here is a great little summary of how the RRSP and the TFSA differ: “RRSPs versus TFSAs: The Math

In summary:

So, while it appears that the two plans produce the same results, that only holds true if your upfront tax rate is the same as your tax rate later on.

RRSPs will make more sense when the tax rate upon withdrawal is expected to be lower than the tax rate upon original contribution. Conversely, TFSAs will work out better if your tax rate (including the effect of RRSP withdrawals on benefits such as the Guaranteed Income Supplement or the Old Age Security, which are clawed back based on income) will be higher upon withdrawal than it was when you contributed.

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