TFSA, RRSP or FHSA: which account should you fund first?
Canada gives you three main tax-advantaged accounts. Picking the right one first can be worth thousands of dollars. Here's how each works and a simple way to decide.
The three accounts at a glance
| Contributions | Withdrawals | Room | |
|---|---|---|---|
| TFSA | Not deductible | Tax-free, any time, for anything | $7,000 for 2026; up to $109,000 total since 2009 if you were 18+ and resident |
| RRSP | Deductible | Taxed as income | 18% of last year's earned income, up to the annual maximum |
| FHSA | Deductible | Tax-free for a qualifying first home | $8,000 a year, $40,000 lifetime |
Step 1: If you might buy your first home, start with the FHSA
The FHSA combines the best of both other accounts: a deduction going in and tax-free money coming out for a qualifying first home. If you don't buy, you can usually transfer it to your RRSP without using RRSP room. Room only starts accumulating once you open the account, so opening one early can make sense even with a small deposit.
Step 2: Compare your tax rate now with your rate later
- Higher income now than you expect in retirement: the RRSP usually wins. You deduct at a high rate and withdraw at a lower one.
- Lower income now: the TFSA usually wins. A small deduction isn't worth much, and TFSA withdrawals never count as income, so they won't reduce benefits like OAS or the GIS later.
- Similar rates: the two come out roughly equal on paper, and the TFSA's flexibility often tips it.
Step 3: Use the employer match first, always
If your employer matches contributions to a group RRSP or pension, take the full match before anything else. An immediate 50% or 100% match beats any tax advantage.
Common mistakes
- Spending the RRSP refund. The refund is a tax deferral, not a bonus. See why the refund isn't free money.
- Over-contributing. Over-contributions are penalized at 1% a month on the excess (the RRSP allows a $2,000 cushion; the TFSA doesn't). Check your room in CRA My Account.
- Treating the TFSA as a savings account. It can hold stocks, ETFs and bonds. Leaving it in cash for decades wastes the tax-free growth.
Once you know where the money goes, the Financial Freedom Planner shows how much to invest each month to reach your goal.
Limits and rules are as published by the Canada Revenue Agency for 2026 and can change; check CRA My Account for your own room. Education only, not financial, tax or investment advice. Numbers are illustrative; check your own situation, or speak with a licensed professional.