Updated: April 2025  |  bremo.io financial guides

TFSA vs RRSP vs Non-Registered: Where to Invest in Canada

Canada offers investors three main account types for holding investments: the TFSA (Tax-Free Savings Account), the RRSP (Registered Retirement Savings Plan), and non-registered (taxable) accounts. Each has distinct tax treatment, rules, and ideal use cases. Knowing which account to use — and in what order — can meaningfully improve your long-term after-tax wealth.

The Three Account Types at a Glance

TFSA — Tax-Free Savings Account

Contributions are made with after-tax dollars (no deduction). All growth inside the account — interest, dividends, capital gains — is completely tax-free. Withdrawals are tax-free at any time for any reason. Withdrawn amounts are added back to your contribution room the following January 1st. The 2025 annual limit is $7,000, with cumulative room of $95,000 for those eligible since 2009.

RRSP — Registered Retirement Savings Plan

Contributions are deductible from taxable income (reducing your tax bill today). All growth is tax-deferred — you pay no tax until you withdraw. Withdrawals are added to your income and taxed as regular income in the year you take them. The annual limit is 18% of prior year earned income, up to $31,560 in 2025. You must convert your RRSP to a RRIF (or annuity) by the end of the year you turn 71.

Non-Registered (Taxable) Account

No contribution limits, no special tax treatment. You invest with after-tax dollars, and investment gains are taxed each year (or when realized). Dividends and interest are taxed annually. Capital gains are taxed only when you sell, at a 50% inclusion rate for the first $250,000 per year (2/3 inclusion above $250,000 per year). There are no restrictions on withdrawals or account size.

The Fundamental Tax Difference

Which Account Should You Use First?

Step 1: TFSA (for Most Canadians)

For the majority of working Canadians — particularly those in low-to-middle income brackets or those who already have a pension — the TFSA is the starting point. Its flexibility is unmatched: no age restriction on contributions, no mandatory withdrawals, no impact on government benefits. If you're saving for retirement, housing, education, or any other goal, the TFSA handles all of them equally well.

Step 2: RRSP (for Higher Earners)

Once your TFSA is maxed, or if you're in a high tax bracket (33%+ marginal rate), the RRSP becomes very attractive. A $100 RRSP contribution by someone in the 43% marginal bracket generates a $4,300 tax refund. If that same person withdraws the money in retirement at a 25% marginal rate, they save 18 percentage points of tax on those dollars — a significant advantage.

The RRSP is also ideal for:

• High-income earners expecting a lower income in retirement
• Using the Home Buyers' Plan (HBP) to borrow up to $35,000 for a first home
• Using the Lifelong Learning Plan (LLP) to borrow up to $20,000 for education
• Holding US dividend-paying stocks (the Canada-US tax treaty exempts RRSP holdings from US withholding tax)

Step 3: Non-Registered Account

After maxing your TFSA and RRSP, a non-registered account is where additional savings go. There are no contribution limits, which is an advantage for high-income earners who save aggressively. The key to non-registered investing is tax efficiency — choosing investments that minimize annual taxable events.

Asset Location: What to Hold Where

Once you have multiple account types, strategic asset location can improve after-tax returns without changing your overall investment allocation. The general principles:

Best Investments for a TFSA

• High-growth equities (maximize tax-free compounding)
• Canadian dividend stocks (dividends are completely tax-free in TFSA)
• All-in-one ETFs if simplicity is preferred
• Avoid US dividend stocks (15% US withholding tax applies and is not recoverable in TFSA)

Best Investments for an RRSP

• US dividend-paying stocks or US equity ETFs (treaty eliminates 15% withholding tax)
• Bonds and bond ETFs (interest income taxed as regular income — better deferred)
• REITs (distributions taxed as regular income — better deferred)
• High-growth equities also work well here

Best Investments for Non-Registered

• Canadian equity ETFs (capital gains are tax-efficient; only 50% included in income)
• Canadian dividend stocks (eligible dividends taxed at preferential rates)
• Avoid bonds and REITs here (interest income is fully taxable)
• Consider ZDB (tax-efficient bond ETF) if bonds must be held here

The TFSA vs. RRSP Decision Framework

A simplified decision guide:

• Income below ~$50,000: Prioritize TFSA — RRSP deduction is less valuable at low rates; TFSA withdrawals won't affect GIS/OAS eligibility in retirement
• Income $50,000–$100,000: Both work well; TFSA often still preferred for flexibility; RRSP valuable if you expect lower retirement income
• Income above $100,000: RRSP becomes more compelling due to high current marginal rates; contribute to both if possible
• You have a defined benefit pension: TFSA may be more useful since your pension will provide predictable retirement income already
• You're self-employed with variable income: RRSP is flexible — contribute in high-income years and defer deductions to years when most valuable

RESP — Registered Education Savings Plan

If you have children, the RESP deserves mention alongside TFSAs and RRSPs. The federal government contributes 20% of your contributions (up to $500/year) through the Canada Education Savings Grant (CESG), up to a lifetime maximum of $7,200 per child. That's a guaranteed 20% return on the first $2,500 contributed annually — hard to beat. If investing for a child's education, max the RESP before putting money into a non-registered account.

The Order of Operations for Canadian Investors

1. Emergency fund (3–6 months, in a HISA)
2. Employer RRSP matching (free money, always take it)
3. High-interest debt (guaranteed return)
4. TFSA (up to annual limit)
5. RRSP (especially if in high bracket)
6. RESP (if you have children)
7. Non-registered account

The interaction between Canada's registered accounts is one of the more complex aspects of personal finance, but the core principle is simple: shelter as much investment growth from tax as possible. Use the TFSA for flexibility and tax-free compounding, the RRSP for high-income deferral, and non-registered accounts for overflow with a focus on tax-efficient investments. Over a lifetime, these decisions can add six figures to your total wealth.