TFSA vs RRSP vs FHSA: Where Should Your Money Go First?

Most people pick the wrong account first. TFSA, RRSP, FHSA—they all sound like alphabet soup from the CRA. But each one is a registered plan with its own rules, its own tax treatment, and its own purpose.

Pick the wrong one and you hand money to the government you didn't need to. Pick the right one and you keep thousands more over the next decade.

Here's what each account actually does—pulled straight from the CRA's own definitions—and which one deserves your money first.

What Each Account Actually Does

TFSA (Tax-Free Savings Account)
A TFSA is a registered plan that lets you save and invest tax-free. According to the CRA, any contribution you make and any income you earn through interest, dividends, or capital gains is generally tax-free—even when you withdraw. You contribute with after-tax dollars (no deduction going in), but everything comes out tax-free. No restrictions on what you spend it on. And here's the part most people miss: TFSA income and withdrawals do not affect federal income-tested benefits like OAS, GIS, the Canada Child Benefit, the Canada Workers Benefit, or the GST/HST credit. That makes it the cleanest money you can pull in retirement or an emergency.

A TFSA can be a simple savings account, a GIC, or a self-directed trust holding stocks, bonds, mutual funds, and ETFs. The CRA allows the same qualified investments as an RRSP. You get contribution room back the calendar year after you withdraw.

RRSP (Registered Retirement Savings Plan)
You contribute pre-tax dollars and get a tax deduction for the year. Everything inside grows tax-sheltered. When you withdraw, the full amount counts as taxable income. The strategy: contribute when your marginal rate is high, withdraw when it's lower—typically in retirement.

First-time home buyers can also withdraw up to $60,000 through the Home Buyers' Plan (HBP) without immediate tax. The CRA confirms you can use both the HBP and an FHSA qualifying withdrawal for the same home, as long as you meet all conditions for each. HBP withdrawals must be repaid over 15 years starting the second year after withdrawal. Miss a repayment and that year's amount gets added to your taxable income.

FHSA (First Home Savings Account)
The newest registered plan. You get a tax deduction on contributions (like an RRSP) AND you pay zero tax when you withdraw for a qualifying first home (like a TFSA). It's both benefits in one account.

The CRA sets the rules: $8,000 per year participation room, $40,000 lifetime cap, and you must be a first-time home buyer to open one. Unused participation room carries forward—but only after the account has been open for at least one full calendar year. If you don't buy within 15 years of opening, the balance must be transferred to your RRSP (no room used) or withdrawn as taxable income.

One detail most guides skip: the CRA defines "first-time home buyer" differently for opening an FHSA versus making a qualifying withdrawal. For opening, neither you nor your spouse can have owned a home you lived in as a principal residence in the current year or the preceding four years. For withdrawing, the rule applies to you only (not your spouse), and it excludes the 30 days immediately before the withdrawal.

You can also transfer money from your RRSP into your FHSA, but those transfers are not tax-deductible.

Side-by-Side Comparison (2026 CRA Limits)

The Tax Math That Matters

The real difference comes down to three things: Do you get a deduction going in? Do you pay tax coming out? And what's your tax rate at each stage?

Example at $60,000 income (Ontario, ~30% combined marginal rate):

• TFSA: You earn $60K, pay tax, put $7,000 in. No deduction. But when you withdraw $10,000 later (with growth), you keep all $10,000. It doesn't show up on your tax return. It doesn't reduce your CCB or GST credit. Clean money.
• RRSP: You earn $60K, contribute $7,000, get ~$2,100 back at tax time. But when you withdraw that $10,000 in retirement at a 20% rate, you pay $2,000 in tax. Net benefit: you saved at 30%, paid at 20%. That 10% spread is your profit. But that $10,000 withdrawal now counts as income—it can claw back your GIS and OAS if you're over 65.
• FHSA: You earn $60K, contribute $8,000, get ~$2,400 back at tax time. When you buy your first home, you withdraw the full amount tax-free. You got the deduction AND the tax-free withdrawal. No repayment. That's as good as it gets.

Example at $100,000 income (Ontario, ~43% combined marginal rate):

At this income, the RRSP deduction saves you $3,010 on a $7,000 contribution. The FHSA saves you $3,440 on $8,000. The higher your tax bracket, the more valuable the deduction becomes.

If you're earning under $55,000, the TFSA often wins over the RRSP. Your marginal rate is low, so the deduction doesn't save you much. And you might end up in the same bracket in retirement—meaning the RRSP gave you zero net benefit but locked your money behind a taxable wall.

If You're Buying a Home

This is where the order matters most. If you're a first-time buyer, here's the priority:

1. FHSA First
Open it today, even if you're not buying for five years. The $8,000 annual participation room only starts accumulating after the account exists. The CRA allows you to carry forward unused room, but only after the first full year. Every year you wait is $8,000 in room you can never recover. You get a tax deduction now and a tax-free withdrawal later. No repayment.

See our full FHSA vs RRSP HBP breakdown

2. RRSP Home Buyers' Plan Second
After maxing the FHSA, contribute to your RRSP. You can withdraw up to $60,000 through the HBP for your down payment. The CRA confirms you can use both HBP and FHSA for the same qualifying home. You get the tax deduction on RRSP contributions, but you must repay HBP withdrawals over 15 years starting the second year after the withdrawal year. Miss a payment and the CRA adds that year's minimum to your taxable income.

3. TFSA Last (for the home purchase)
Only if you've maxed both of the above and still need more for your down payment. TFSA withdrawals don't count as income on your mortgage application, which is a nice perk. But you don't get a deduction going in, so for pure down-payment saving, it's third in line.

Build a 24-month savings plan that uses all three accounts

The Couple Strategy

Two first-time buyers purchasing together can stack these accounts:

That's $200,000 in tax-advantaged down payment funds. On a $600,000 home, that's a 33% down payment—enough to avoid CMHC insurance entirely and get you a much better mortgage rate.

Don't forget closing costs on top of your down payment

If You're Not Buying a Home

No home purchase on the horizon? The decision is simpler but still depends on your income.

If your marginal rate is 40% or higher (roughly $100K+ in most provinces):
RRSP first. The tax deduction is worth more to you now. You'll likely withdraw in a lower bracket in retirement.

If your marginal rate is under 30% (roughly under $55K):
TFSA first. The deduction doesn't save you much, and you might be in the same bracket when you retire. The TFSA's flexibility—no tax on withdrawal, room comes back, no impact on federal benefits—is more valuable.

If you're in between ($55K–$100K):
Split it. Put enough in your RRSP to drop to a lower bracket, then put the rest in your TFSA. This is what most financial planners actually recommend but rarely explain clearly.

What about the FHSA if you're not buying?
Still open one if you're eligible (under 71, never owned a home you lived in). You have 15 years. If you end up buying, you'll be glad you started the clock. If you don't, the money transfers directly to your RRSP without using any RRSP room—and you already got the tax deduction when you contributed. It's a free RRSP top-up with no downside.

See how TFSA investing compares to spending on a car payment

Common Mistakes

Contributing to your RRSP in a low-income year. If you're earning $40,000, the RRSP deduction saves you maybe 20%. But if your income grows to $90,000 in a few years, that same deduction would save you 35%+. Carry forward the room and contribute later—or use the TFSA now.

Ignoring the FHSA clock. The FHSA participation room only starts accumulating after you open the account. If you open it in 2026 and want to buy in 2029, you can contribute up to $32,000 (4 years × $8,000). If you'd opened it in 2024, you'd have the full $40,000. Open it now even if you only put in $100.

Not using all three. These aren't competing accounts. They work together. A first-time buyer earning $80K should have all three open: FHSA for the deduction + tax-free withdrawal, RRSP for extra capacity through HBP, and TFSA for emergency reserves and anything beyond the other limits.

Pulling from the RRSP instead of the TFSA in an emergency. RRSP withdrawals are taxable income and you permanently lose the contribution room. TFSA withdrawals are tax-free and the room comes back the following January. Always reach for the TFSA first.

Over-contributing to your TFSA. The CRA charges a 1% per month penalty on excess TFSA amounts. If you withdrew $10,000 this year, that room doesn't come back until January 1 of next year. Re-contributing too early is one of the most common TFSA penalties.

Transferring between TFSAs the wrong way. If you want to move your TFSA from one bank to another, you must request a direct transfer through the institution. If you withdraw and recontribute yourself, it counts against your contribution room and can trigger an over-contribution penalty.

Can I have a TFSA, RRSP, and FHSA at the same time?

Yes. There's no rule against holding all three. In fact, for a first-time buyer earning more than $55,000, having all three open is the best strategy. Each is a separate registered plan with its own contribution limits. They don't interfere with each other.

What if I opened an FHSA but decided not to buy?

You have two options. You can transfer the balance directly to your RRSP at any time—this doesn't use any RRSP contribution room. Or you can withdraw it as taxable income. After 15 years (your maximum participation period), you must do one or the other. The RRSP transfer is almost always the better move. You already got the deduction going in, and the money keeps growing tax-sheltered.

Should I use my TFSA for a down payment?

You can, but it should be your last resort after maxing the FHSA and using the HBP. The TFSA doesn't give you a tax deduction on contributions. The one advantage: TFSA withdrawals don't count as income, don't affect your federal benefits, and don't show up on your mortgage application—so they won't change your debt service ratios.

Does RRSP withdrawal count as income for mortgage qualification?

Regular RRSP withdrawals—yes, they count as taxable income. But HBP withdrawals are different. The CRA does not include HBP amounts as income on your tax return. However, lenders may ask about the source of your down payment and the repayment obligation. Most lenders factor the HBP repayment ($60,000 ÷ 15 = $4,000/year) into your debt service ratios. Ask your broker how your specific lender handles it.

See the complete first-time buyer guide for 2026

Which account should a 25-year-old open first?

If you might buy a home in the next 15 years: FHSA first, then TFSA, then RRSP. At 25, your income is likely still growing. The FHSA gives you the deduction now and tax-free withdrawal later. The TFSA gives you flexibility and won't affect your future government benefits. The RRSP can wait until your income—and tax bracket—is higher.

If homeownership isn't on your radar at all: TFSA first, RRSP second. At a lower income, the TFSA's tax-free growth and withdrawal flexibility beats the RRSP deduction.

Can I transfer between these accounts?

• RRSP to TFSA: Not directly. You must withdraw from the RRSP (taxable), then contribute to the TFSA using your available room.
• RRSP to FHSA: Yes. The CRA allows direct transfers from your RRSP to your FHSA. But these transfers are not tax-deductible, and they count against your FHSA participation room.
• FHSA to RRSP: Yes, direct transfer allowed. Doesn't use RRSP room. Available any time, but mandatory after 15 years if you haven't bought.
• TFSA to RRSP: Not directly. Withdraw from TFSA (tax-free), contribute to RRSP (get the deduction). This actually works in your favour if your income has gone up.
• FHSA to TFSA: Not directly. Must withdraw from FHSA (taxable if not for a qualifying home purchase), then contribute to TFSA.

The only penalty-free direct transfer paths are FHSA → RRSP and RRSP → FHSA. Everything else requires a withdrawal and recontribution.

Do TFSA withdrawals affect my government benefits?

No. This is one of the biggest advantages of a TFSA over an RRSP. The CRA confirms that TFSA income and withdrawals do not affect your eligibility for Old Age Security (OAS), Guaranteed Income Supplement (GIS), Employment Insurance (EI), Canada Child Benefit (CCB), Canada Workers Benefit (CWB), or the GST/HST credit. RRSP withdrawals, on the other hand, count as taxable income and can claw back income-tested benefits.

What happens if I over-contribute to my TFSA?

The CRA charges a penalty tax of 1% per month on the highest excess amount in your TFSA for each month the over-contribution remains. This catches a lot of people who withdraw money and then recontribute in the same calendar year—that room doesn't come back until January 1 of the following year. Check your TFSA contribution room on CRA My Account before putting money back in.

Can I use both my FHSA and the RRSP Home Buyers' Plan for the same home?

Yes. The CRA explicitly confirms you can make a qualifying withdrawal from your FHSA and an HBP withdrawal from your RRSP for the same qualifying home, as long as you meet all the conditions for each at the time of withdrawal. This is how couples and individuals can access up to $100,000 per person in tax-advantaged home-buying funds.

What qualifies as a "first-time home buyer" for the FHSA?

The CRA uses two different definitions depending on whether you're opening an FHSA or making a qualifying withdrawal. To open: neither you nor your spouse can have owned a home used as a principal residence in the current year or the previous four calendar years. To withdraw: only your ownership history matters (not your spouse's), and it excludes the 30 days immediately before the withdrawal. This means you could technically buy and still qualify for the withdrawal if you didn't live in a home you owned during the look-back period.

Can I hold stocks and ETFs inside an FHSA?

Yes. The CRA allows the same qualified investments in an FHSA as in a TFSA or RRSP: savings deposits, GICs, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange. You can open a self-directed FHSA at most major brokerages and invest in individual stocks, ETFs, or index funds. Growth inside the account is tax-free as long as it's withdrawn for a qualifying home purchase.

What happens to my FHSA if I get married to someone who owns a home?

If your spouse or common-law partner owns a home that you live in as your principal residence, you would no longer meet the first-time buyer definition for making a qualifying withdrawal. However, you can still keep the account open and transfer the balance to your RRSP (without using RRSP room) at any time. You don't lose the tax deduction you already claimed on the contributions.