RRSP vs. TFSA: Where Should You Put Your Money in 2025?

“I have some money to invest, but I’m confused… what’s the best account for my goals?”

If you’ve ever asked yourself this question, you’re not alone. RRSPs and TFSAs are two of the most powerful savings tools in Canada and for some choosing between them can feel like a coin flip. But with a little bit of planning, the right choice becomes clear.

Start With Your Goals and Time Horizon

The key to deciding between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) isn’t about which one is “better.” It may come down to what you’re saving for and when you’ll need the money.

If your goal is long-term retirement savings and you’re earning a moderate to high income today, the RRSP often wins. In Manitoba, you reach the 33.25% combined federal and provincial income tax level at $57,376, and the 37.90% combined rate kicks in at $100,001. If you're fortunate enough to earn over $253,415, the top rate hits 51.25%! Bottom line: The more you earn, the more likely RRSPs should be an integral part of your financial plan.

Both RRSPs and TFSAs let your investments grow tax-free. The real difference lies in when you get taxed.

RRSPs: Defer Now, Pay Later

RRSP contributions are tax-deductible. This means you can reduce your taxable income today and pay tax later when you withdraw. Typically, that’s in retirement when your income, and tax rate, may be lower. Not only could your tax rate be lower, but you may also defer your tax bill significantly (sometimes by decades). However, if your income ends up being higher in retirement, you could actually pay more tax on those withdrawals.

TFSAs: Pay Now, Withdraw Tax-Free Later

TFSA contributions are made with after-tax dollars, so there’s no immediate tax break. However, all the growth (interest, dividends and capital gains) is yours to keep completely tax-free. Plus, withdrawals are tax-free too, no matter when you take them.

This flexibility makes TFSAs ideal for building emergency savings, saving for medium-term goals, and supplementing retirement income without triggering OAS clawbacks.

2025 Contribution Limits

• TFSA limit for 2025: $7,000 ; Lifetime limit: $102,000 (if you were 18 or older in 2009)
• RRSP limit for 2025: 18% of 2024 income, up to $32,490

Example 1: RRSP First

Alan, age 36, lives in Manitoba and earns $95,000 per year. He plans to retire at 60 and chooses to contribute to his RRSP to maximize his tax refund. If he deposits $10,000 in 2025, he could receive a refund of approximately $3,325. He then can use that refund to top up his RRSP further or invest in his TFSA to benefit from the best of both worlds.

Example 2: TFSA First

Bailey, age 27, lives in Manitoba and earns $55,000 per year. She is saving up for an around-the-world trip that she hopes will happen in the next few years. She decides to invest through her TFSA for the flexibility. RRSP contributions now wouldn’t offer huge tax savings, as her marginal tax rate is "only" 27.25%, and her unused RRSP contribution room will carry forward for her to use later when her income (and tax rate) is higher.

Closing Thoughts

When used wisely, both RRSPs and TFSAs can help you build financial security. The key is matching the right tool to the right goal. If you’re unsure which path makes the most sense for you, it’s worth having a conversation with your trusted financial advisor. A personalized plan can make all the difference.

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This information has been prepared by Ryan Secord who is a Senior Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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