RRSP, TFSA or FHSA: which first?

If you may buy a first home, the FHSA stands out: it gives you a deduction going in and tax-free money coming out for a qualifying home. Between an RRSP and a TFSA, the trade-off mostly comes down to your tax rate now compared with later, and whether you might need the money before you retire.

How each plan is taxed

Plan	Going in	Coming out
RRSP	Deductible	Taxed as income
TFSA	Not deductible	Tax-free
FHSA	Deductible	Tax-free for a qualifying first home; other withdrawals taxed as income

Investment income earned inside any of the three generally isn’t taxed while it stays in the account. The difference is what happens at each end.

How much room you get

• RRSP: 18% of the previous year’s earned income, up to $32,490 for 2025, less any pension adjustment from a workplace plan, plus unused room from earlier years.
• TFSA: $7,000 of new room each year (the same for 2026: $7,000), starting the year you turn 18 if you’re a resident of Canada. Unused room carries forward, and anything you withdraw is added back to your room on January 1 of the next year.
• FHSA: $8,000 a year, starting the year you open your first FHSA, up to $40,000 over your lifetime. Unused room carries forward, but only up to $8,000, and no room builds up before you open an account.

Every year’s limits are in our registered plan limits table.

The FHSA, if you may buy a first home

You can open an FHSA if you’re a resident of Canada, are at least 18 (19 where that’s the legal age to enter a contract), are no older than 71 at the end of the year, and are a first-time home buyer. For opening an account, that means that in this calendar year and the previous four, you didn’t live, as your main home, in a home that you or your current spouse or common-law partner owned.

The FHSA combines features of the other two. Contributions are deductible, like an RRSP. A qualifying withdrawal to buy or build your first home is tax-free and doesn’t have to be paid back, like a TFSA. You can also withdraw from your RRSP under the Home Buyers’ Plan for the same home, as long as you meet the conditions of each.

If you don’t end up buying, the money isn’t stranded: as long as you haven’t over-contributed, you can transfer it directly to your RRSP or RRIF with no immediate tax, and a direct transfer generally doesn’t use up your RRSP room. Because no FHSA room builds up until you open an account, opening one sooner starts your room growing, even if you can’t contribute much yet. The trade-off is that an FHSA can only stay open for a limited time (at most 15 years). See FHSA and the Home Buyers’ Plan for the details.

An RRSP when your tax rate is high now

An RRSP deduction saves tax at your current rate, and withdrawals are taxed at whatever your rate is when the money comes out. So the RRSP tends to work best when you’re in a higher bracket now than you expect to be in retirement.

If your income is low this year but likely to rise, you can still contribute now and deduct the contribution in a later year, when it’s worth more. The income tax and RRSP savings calculator shows what a deduction would save at your income. More in RRSPs: how contributions save tax.

A TFSA when your rate is low, or you may need the money

TFSA contributions don’t reduce your tax, but everything that comes out is tax-free, and you can withdraw at any time for any reason. Income earned in a TFSA, and withdrawals from it, don’t affect federal income-tested benefits and credits such as Old Age Security, the Guaranteed Income Supplement, the Canada child benefit or the GST credit. RRSP withdrawals, by contrast, are taxable income.

That can make the TFSA the better fit when:

• your income is low, so an RRSP deduction wouldn’t save much
• you’re saving for something before retirement, or keeping an emergency fund
• you expect income-tested benefits to matter to you in retirement.

One caution: if you take money out, don’t put it back in the same year unless you have unused room. An over-contribution is taxed at 1% a month for as long as it stays in. More in Your TFSA: how it works.

Weighing it up

• A first home on the horizon? If you qualify, the FHSA gives you both a deduction and a tax-free qualifying withdrawal, and its room only starts building once you open one.
• Tax rate now versus later. A higher rate now than you expect when the money comes out favours the RRSP; a lower rate now, or a need for flexibility, favours the TFSA.
• Check your room first. Your CRA account shows your room for each plan; compare it with your own records of this year’s contributions and withdrawals before you contribute.