TFSA or RRSP: which one first?

An RRSP deduction saves tax at your current marginal rate and taxes the withdrawal at your future marginal rate. If those rates are equal, the RRSP and the TFSA produce identical after-tax outcomes. If your rate today is higher than in retirement, the RRSP wins; if lower, the TFSA wins.

That makes the RRSP strong for someone earning over roughly $110,000 and the TFSA strong for someone in the lowest bracket, a student, or anyone whose income will jump within a few years.

TFSA withdrawals are invisible to the CRA's benefit formulas. RRSP and RRIF withdrawals are not: they count toward the Old Age Security recovery tax, the Guaranteed Income Supplement, the age amount and provincial drug or housing programs.

For a lower-income retiree who will receive GIS, an RRSP can be actively harmful — every dollar withdrawn can reduce GIS by 50 cents on top of the income tax. For a high-income retiree, the OAS clawback of 15% on income above the threshold effectively adds 15 points to the marginal rate.

During working years, RRSP contributions reduce net income and can increase the Canada Child Benefit — sometimes worth more than the tax refund itself for families with young children.

Take any employer RRSP match first; a 50% match beats every tax argument. Fill the TFSA next if you are in the two lowest brackets. Use the RRSP aggressively in your peak earning decade, and invest the refund rather than spending it — otherwise the RRSP quietly underperforms the TFSA.

Keep an emergency fund in the TFSA, never the RRSP: withdrawn RRSP room is gone forever, while TFSA room returns on January 1 of the following year.