If you’ve been saving money throughout 2026 and are deciding how to put it back to work for you, choosing between your TFSA and RRSP is something almost every Canadian investor faces. And it’s a good problem to have.
Both accounts are incredibly popular because they give your investments room to grow without paying tax on every gain along the way. That can make a huge difference when you give your returns years to compound.
But the decision doesn’t end with which account you contribute to, since many Canadians eventually use both. Once you’ve decided where to put your cash this year, you also have to think about which stocks to buy in each account, since they offer different benefits and come with different rules.
Source: Getty Images
Which account should get your next contribution?
The simplest way to decide which account to contribute to is to look at the tax benefits.
A TFSA doesn’t give you a deduction when you contribute, but you can withdraw your investment gains tax-free. An RRSP gives you a deduction now, while withdrawals are generally taxable later.
So, to keep the example simple, say you have $1,000 saved to invest, and you’re paying a 30% tax rate. If you put that $1,000 in an RRSP, the deduction could save you $300 in tax. Invest that refund in your RRSP too, and you’d have $1,300 invested before accounting for any further tax savings.
If you put the $1,000 in a TFSA instead and your investment doubles, you’d have $2,000 you could withdraw tax-free.
On the other hand, if the $1,300 in your RRSP also doubles, you’d have $2,600 compared to $2,000 in your TFSA. However, you’d still have to pay tax when you withdraw the money.
That’s why the tax rate you pay later matters, and why RRSP contributions can be especially valuable in years when you’re paying your highest tax rate.
For example, if you’re paying 30% tax when you contribute but only 20% when you withdraw, you’d keep $2,080 of that $2,600, slightly more than the $2,000 in your TFSA.
With that said, the flexibility of the TFSA is a massive advantage that can’t be overlooked. You can withdraw from it whenever you want without paying tax, and the amount you take out is added back to your contribution room the following calendar year.
You can withdraw from an RRSP before retirement too, but that money is generally taxable.
Another important consideration is whether your employer matches RRSP contributions. If it does, I’d take advantage of the match first. That puts more money to work for you immediately.
Ideally, over time, you’ll be contributing to both, using the RRSP when its deduction is especially valuable while continuing to build tax-free savings in your TFSA.
Which stocks should you hold in each account?
Once you’re using both accounts, where you buy each individual stock can make a difference too.
For example, if you want to own a U.S. dividend stock directly, an RRSP can be an attractive place to hold it because U.S. dividends paid into a TFSA generally face withholding tax, while those paid directly into an RRSP are generally exempt under the tax treaty.
Meanwhile, a TFSA can be an especially appealing place for a Canadian growth stock you plan to own for years, such as Dollarama (TSX: DOL).
The discount retailer isn’t just one of Canada’s best-known brands; it’s also been one of the most impressive growth stocks on the TSX for years.
In the last decade alone, it has delivered investors a total return of more than 450%, or a compound annual growth rate of 18.7%.
A stock that can grow like that is exactly the kind of investment you’d want in your TFSA. You can let the gains compound for years without worrying about your tax bracket when you eventually withdraw. And if something comes up in the meantime, because life happens, you can take the money out whenever you want, tax-free.
