How this calculator works
The comparison uses the same pre-tax amount in both accounts. In a TFSA you pay tax now, so the amount invested is the pre-tax amount minus tax at your current rate. It grows tax-free and is withdrawn tax-free. In an RRSP you invest the full pre-tax amount, deduct it now and pay tax on the whole withdrawal at your retirement rate. Both accounts earn the same constant return for the same number of years. The comparison ignores contribution room, the timing of the RRSP deduction, provincial tax differences, OAS and GIS clawbacks, fees and the risk that tax rates change. When the two tax rates are equal, the after-tax results are equal.
Formula
TFSA after tax = A(1-t0)(1+r)^n. RRSP after tax = A(1+r)^n(1-t1). Difference = RRSP after tax - TFSA after tax. A is the pre-tax amount, t0 the tax rate now, t1 the tax rate at withdrawal, r the annual return and n the years.
Worked example
A $10,000 pre-tax amount invested for 20 years at 5%: with a 40% tax rate now and 25% at retirement, the TFSA is worth $15,919.79 after tax and the RRSP $19,899.73, so the RRSP is ahead by $3,979.95. With 30% at both ends, both are worth $18,573.08.
Advertisement
Frequently asked questions
Why does the RRSP win in the first example?
A lower tax rate at withdrawal means less tax is paid on the larger RRSP balance.
Is the RRSP refund invested?
The calculation assumes the full pre-tax amount is invested in the RRSP. It does not separately invest the refund, which would make the RRSP result higher.
Which is better if tax rates are equal?
They are equivalent after tax in this model. The RRSP and TFSA differ in flexibility, withdrawal rules and the effect on income-tested benefits.
Does the calculator include contribution limits?
No. It compares the tax treatment of a single amount, not whether you have enough RRSP or TFSA room.