TFSA or RRSP after 65, and what the numbers tend to favour

The RRSP and the TFSA are mirror images. One gives a tax deduction on the way in and taxes everything on the way out; the other gives nothing on the way in and nothing is taxed on the way out. Before retirement, the comparison is mostly about tax rates. After 65, a second set of rules joins in: Old Age Security, the Guaranteed Income Supplement and the age amount all look at income, and only one of the two accounts produces income they can see.

This sheet works through the arithmetic both ways, without recommending either.

How each account is taxed

The working: when they finish level

Take $10,000 of pre-tax earnings set aside, which grows by 20% before it is spent. In the RRSP, the whole $10,000 goes in because the contribution is deducted. In the TFSA, tax is paid first, so less goes in. Assume a 30% rate when the money is earned:

When the rate going in equals the rate coming out, the two finish exactly level. Everything after that is about which way the rates move. The key word in the first column is “effective”: after 65, the rate that matters is not just the tax bracket but everything that an extra dollar of income switches off.

What changes after 65

Three income tests sit on top of ordinary income tax for many people over 65:

• The Guaranteed Income Supplement is reduced by $1 for every $2 of other income, so it takes at least 50 cents of each extra taxable dollar; see why one extra dollar of income can matter when you receive GIS.
• The age amount shrinks by 15 cents per dollar of net income above $46,432 (2026), worth about 2.1 cents of federal tax; see the age amount, and why it shrinks as income rises.
• The OAS recovery tax takes 15 cents per dollar of net world income above $95,323 (2026 income), collected the following July to June.

RRIF and RRSP withdrawals count for all three. TFSA withdrawals count for none.

The working: three retirees

Here is the illustrative federal cost of an extra $1,000 taken from a RRIF, for three people at different income levels in 2026. Provincial tax and provincial credits would add to each figure.

Read against Table 2, the pattern is clear. Person A, receiving GIS, faces an effective rate of at least 50% on RRIF money, far above any rate at which it was likely deducted. Person C, inside the OAS recovery band, is close to 40% federally before provincial tax. Only person B is in territory where the two accounts are roughly comparable.

Where the RRSP side still wins

The numbers do not all point one way. The RRSP route tends to come out ahead when the deduction was taken at a high rate during working years and the money comes out at a low one, with no income-tested benefit in the way. From 65, RRIF payments also qualify for the pension income amount, which shelters the first $2,000, and eligible pension income can be split with a spouse. An RRSP that already exists cannot simply be moved into a TFSA without first being withdrawn and taxed, and the RRIF minimums decide part of the timing anyway; see why RRIF minimum withdrawals rise every year.

The same arithmetic explains an idea that comes up often in retirement planning discussions: drawing on RRSP money in years when income is unusually low, for example after work stops but before CPP and OAS begin, and keeping TFSA money for later. In those years the effective rate on an RRSP withdrawal can be at or below the rate at which it was deducted, and no income-tested benefit is yet in play. Whether that applies to any particular household depends on ages, other income and health, which is why it is presented here as arithmetic rather than as a recommendation.

Ages, limits and room

• RRSP contributions are possible until 31 December of the year you turn 71, and only with unused deduction room, which depends on earned income.
• The TFSA has no upper age limit. The annual dollar limit for 2026 is $7,000, added to any unused room carried forward.
• Amounts withdrawn from a TFSA are added back to contribution room on 1 January of the following year, not immediately. Over-contributions are taxed at 1% a month.

Who this matters for, and what to check

• Anyone receiving or close to qualifying for GIS: where withdrawals come from can change next year’s supplement.
• Anyone with net income near $95,323: one large RRIF withdrawal can trigger an OAS repayment a year later.
• Check TFSA room in your CRA account, keeping in mind that recent transactions may not yet be reflected.

The short version

With equal tax rates in and out, an RRSP and a TFSA finish level. After 65, the effective rate on RRIF withdrawals often rises above the bracket rate because GIS, the age amount and the OAS recovery all respond to taxable income, while TFSA withdrawals are invisible to them. That tilt is largest for people receiving GIS and for people above the OAS threshold, and smallest for people in the middle with no income-tested benefits at stake.