Three accounts in plain language
- TFSA: contributions are not deductible; eligible growth and withdrawals are generally tax-free, and withdrawn room generally returns the next calendar year.
- RRSP: eligible contributions may reduce taxable income; growth is tax-deferred and withdrawals are generally taxable.
- FHSA: for eligible first-time home buyers; eligible contributions may be deductible and qualifying home-purchase withdrawals can be tax-free.
When might FHSA come first?
If you qualify as a first-time home buyer and plan to buy an eligible home in Canada, an FHSA is often worth reviewing early. Account-opening dates and carry-forward rules affect available room, so do not rely only on the lifetime maximum.
When is TFSA more flexible?
A TFSA may be useful when money could be needed for emergencies or medium-term goals, or while current income and marginal tax rates are lower. Actual room depends on residency, contributions and withdrawals; confirm your own records before contributing.
When should RRSP be considered?
An RRSP is primarily designed for retirement and tax planning. Employer matching, current income and eligible home-buying programs may affect the decision. A deduction today is not permanent tax-free treatment: withdrawals are generally taxable and may affect income-tested benefits.
Ask four questions first
- When might the money be needed?
- Is the goal a home, retirement or flexibility?
- How does today’s tax rate compare with the expected future rate?
- What room appears on CRA records or the Notice of Assessment?
Common mistakes
- Confusing an account type with the investment held inside it.
- Contributing without confirming available room.
- Withdrawing and recontributing instead of requesting a direct institutional transfer.
- Choosing RRSP only for a refund without considering future withdrawals and benefits.
General education only. Confirm current eligibility, limits and tax consequences for your situation.