Build Wealth and Optimize Your Taxes
When it comes to building wealth in Canada, three accounts matter above all others:
Tax-Free Savings Account (TFSA)
First Home Savings Account (FHSA)
Registered Retirement Savings Plan (RRSP)
These are the building blocks for Canadians who want to accumulate wealth, reduce taxes, and secure financial independence.
Keep on reading to capture the essence of the accounts, how to use them properly, and avoid the usual pitfalls.
Before getting started, know that most online brokers support the accounts but not all brokers are equal — choose the right broker to trade.
Tax-Free Savings Account (TFSA): The Freedom Account
The TFSA, launched in 2009, is the most flexible and powerful account available to Canadians. All growth—capital gains, dividends, interest—is completely tax-free. Withdrawals are also tax-free and don’t affect government benefits.
Contribution Rules
2025 annual contribution limit: $7,000.
Unused room carries forward.
Withdrawals add back room in the following year.
Cumulative TFSA Contribution Room (2009–2025)
Year | Annual Limit | Cumulative Limit | 5% Growth | 10% Growth |
|---|---|---|---|---|
2009 | $5,000 | $5,000 | $5,250 | $5,500 |
2010 | $5,000 | $10,000 | $10,762 | $11,550 |
2011 | $5,000 | $15,000 | $16,550 | $18,205 |
2012 | $5,000 | $20,000 | $22,628 | $25,525 |
2013 | $5,500 | $25,500 | $29,534 | $34,128 |
2014 | $5,500 | $31,000 | $36,786 | $43,590 |
2015 | $10,000 | $41,000 | $49,125 | $58,949 |
2016 | $5,500 | $46,500 | $57,536 | $70,984 |
2017 | $5,500 | $52,000 | $65,999 | $84,034 |
2018 | $5,500 | $57,500 | $75,074 | $98,487 |
2019 | $6,000 | $63,500 | $85,128 | $114,986 |
2020 | $6,000 | $69,500 | $95,684 | $133,030 |
2021 | $6,000 | $75,500 | $106,769 | $152,933 |
2022 | $6,000 | $81,500 | $118,407 | $174,827 |
2023 | $6,500 | $88,000 | $131,152 | $199,459 |
2024 | $7,000 | $95,000 | $145,061 | $227,105 |
2025 | $7,000 | $102,000 | $159,664 | $257,516 |
2026 | $7,000 (est) | $109,000 | $174,997 | $290,967 |
2027 | $7,000 (est) | $116,000 | $191,097 | $327,764 |
2028 | $7,500 (est) | $123,500 | $208,526 | $368,791 |
2029 | $7,500 (est) | $131,000 | $226,828 | $413,920 |
2030 | $7,500 (est) | $138,500 | $246,044 | $463,562 |
2031 | $7,500 (est) | $146,000 | $266,221 | $518,168 |
2032 | $7,500 (est) | $153,500 | $287,407 | $578,235 |
💡 Pro Tip |
TFSA Mistakes to Avoid
Overcontributing (1% penalty per month).
Recontributing in the same year after a withdrawal.
Holding only cash.
Trading too frequently (risk of being taxed as a business).
Other Important Considerations
Foreign Withholding Taxes: U.S. dividends inside a TFSA are subject to a 15% withholding tax under the Canada–U.S. tax treaty. Unlike the RRSP, the TFSA does not get an exemption, so U.S. dividend-paying stocks are often better held in RRSPs.
Flexible Withdrawals: The TFSA is one of the best accounts for major expenses in life. Whether it’s a car, education costs, or a home down payment, withdrawals are tax-free and don’t affect future contribution room (added back the next year).
💡 Did You Know? |
First Home Savings Account (FHSA): The New Kid with Massive Power
The FHSA, introduced in 2023, blends the tax advantages of both the TFSA and RRSP. Contributions are tax-deductible, and withdrawals for a qualifying home are tax-free. If you don’t buy, the money can roll into an RRSP or RRIF.
Contribution Rules
$8,000 max annual contribution.
$40,000 lifetime contribution limit.
Must be a first-time buyer (no home in past 4 years).
Account must close after 15 years or by age 71.
💡 Did You Know? |
📚 FROM THE BOOKSHELF
Up your money game one book at a time. There is always a little something we can learn.
Is Dying Rich Your Goal?
We know that retirement is about decumulation, and dying rich isn’t really the goal we all have. Read about a different mindset that might just change your retirement approach …
Qualification & Withdrawal Checklist
✅ You must be a Canadian resident and a first-time home buyer (you and your spouse haven’t owned a home in the past four years).
✅ You can hold the same types of investments as in TFSAs/RRSPs (ETFs, stocks, mutual funds, GICs).
✅ To make a tax-free withdrawal for a qualifying home, you must:
Complete CRA Form RC725 before withdrawal.
Have a written agreement to buy/build a qualifying home before October 1 of the following year.
Be a Canadian resident until the home is purchased.
✅ Non-qualifying withdrawals are taxed like RRSP withdrawals.
Registered Retirement Savings Plan (RRSP): The Tax-Deferral Engine
The RRSP lets you defer taxes by contributing pre-tax dollars, reducing taxable income today. Investments grow tax-deferred, and withdrawals are taxed later.
Contribution Rules
Annual limit: 18% of income (max $32,490 for 2024).
Unused room carries forward indefinitely.
Contributions made in the first 60 days of a year can count toward the previous tax year.
RRSP Refund Reinvestment Example (20 Years @ 10% Growth)
Year 1 is the initial contribution with the subsequent years showing the growth of the first contribution. Now, imagine re-investing the refund every year for 15 or 20 years, that’s a lot of tax-refund at work.
Year | RRSP w/o Refund Reinvested ($) | RRSP w/ Refund Reinvested ($) |
|---|---|---|
1 | 5,500 | 7,700 |
5 | 8,052 | 11,273 |
10 | 12,970 | 18,158 |
15 | 20,885 | 29,216 |
20 | 33,637 | 47,092 |
Common RRSP Mistakes
Withdrawing early.
Ignoring the deadline (contributions after 60 days don’t count for prior year).
Overcontributing (1% penalty per month above one time $2,000 buffer).
Not reinvesting your tax refund.
Over-reliance on RRSPs if you already have a pension.
Failing to name a proper beneficiary (spouse or common-law partner).
Ignoring spousal RRSPs for future tax-efficiancy.
Relying only on RRSPs without a TFSA.
Fixing an RRSP Over-Contribution
If you overcontribute beyond your $2,000 buffer:
Withdraw the excess amount as soon as possible to avoid longer taxes, or pay the penalty to carry into the new year.
File Form T1-OVP with CRA.
Pay 1% penalty per month until it’s resolved.
Interest stops once your contribution room catches up.
📌 Example:
If you overcontribute $5,000 for two months, you’ll owe 1% × $3,000 × 2 = $60 in penalties, plus interest on that amount. The $3,000 is due to the $2,000 lenient buffer allowed to go over.
Advanced RRSP Tactics to Maximize Value
RRSP Loans: Borrow short-term before the deadline to maximize contributions, then repay with your tax refund. This is used to catchup on your contribution room. Some tax software will help you calculate the best number to borrow.
Regular Contributions: Monthly or biweekly contributions smooth returns and build discipline.
HBP & LLP: Withdraw up to $35,000 (Home Buyers’ Plan) or $10,000 (Lifelong Learning Plan) tax-free, provided you repay on schedule.
Spousal RRSPs: Ideal for income splitting in retirement.
More RRSP Details Investors Overlook
Withholding Taxes on Withdrawals: Any early withdrawal from an RRSP triggers withholding tax at source:
10% (up to $5,000 withdrawn)
20% ($5,001–$15,000)
30% (over $15,000)
This is not necessarily your final tax — the withdrawal is added to your income and reconciled at tax filing.
Overcontribution Penalty Mechanics: Contributions above your RRSP limit (beyond the $2,000 grace buffer) are penalized at 1% per month. CRA requires filing form T1-OVP annually if you’ve overcontributed.
Deadline Timing: Contributions made in the first 60 days of a calendar year can be applied to the prior tax year.
Advanced Strategy – Carrying Forward Deductions: You can contribute to an RRSP now but choose to claim the deduction in a future year when your income (and tax bracket) is higher.
Having RRSP inevitably leads to understanding RRIF down the line as a tax withdrawal strategy. RRIF is how the government gets back some of the tax refund you put to work.
💡 Did You Know? |
TFSA vs RRSP: Which Comes First?
A common first step is to compare the two accounts in order to choose which one to start with. If you can, do both. Otherwise, read below. Remember the tax refund rule, nothing says you have to invest it back in the RRSP account; you can put it in your TFSA, or FHSA. The point is to not spend it on a trip!
Best Strategy by Income Level
Income Level | Best Strategy |
|---|---|
$50,000 | TFSA first (lower tax bracket, flexibility) |
$80,000 | Balanced TFSA + RRSP (mid tax bracket) |
$120,000 | RRSP first (maximize tax refund, reinvest wisely) |
RRSP First if: High income ($100K+), expect lower income in retirement, and can reinvest refunds.
TFSA First if: Moderate income (<$80K), want flexibility, or uncertain about future tax rates.
💡 Did You Know? |
Putting It All Together
Here’s how the three accounts fit into a wealth-building strategy:
Start with TFSA → Flexible and tax-free forever.
Add FHSA if eligible → Max it out for home or RRSP rollover.
Layer in RRSP → Especially if in higher brackets.
Balance RRSP + TFSA → Avoid being retirement-rich but tax-handcuffed.
Plan for RRIF conversion → Unlock tax-efficient withdrawals.
Example Investor Journey
20s–30s: TFSA first; FHSA if buying a home.
30s–40s: Add RRSP as income rises.
40s–50s: Balance TFSA and RRSP growth.
50s+: Build a withdrawal strategy.
60s+: Draw down RRSPs before RRIF, use TFSA as buffer.
Withdrawal Strategy Example in Your 60s
From lowest taxable income / OAS risk to highest:
TFSA + Non-Registered (lowest taxable income, especially if gains/dividends dominate).
RRIF + TFSA Blend (moderately efficient, balances withdrawals).
RRIF + Non-Registered (less efficient, still reduces RRIF burden).
RRIF Only (least efficient, fully taxable).
* Non-registered taxation depends on income type: capital gains (50% taxable) are most efficient, interest is least efficient.
* Blended RRIF + non-registered income creates a mid-level taxable income, often better than RRIF-only but less efficient than heavy TFSA use.
Category | TFSA + Non-Registered | RRIF + TFSA Blend | RRIF + Non-Registered | RRIF Only |
|---|---|---|---|---|
Annual RRIF Withdrawal ($) | 0 | 25,000 | 20,000 | 40,000 |
Annual TFSA Withdrawal ($) | 20,000 | 15,000 | 0 | 0 |
Annual Non-Registered Withdrawal ($) | 20,000 | 0 | 20,000 | 0 |
Total Income ($) | 40,000 | 40,000 | 40,000 | 40,000 |
Taxable Income ($) | 20,000* | 25,000 | ~30,000** | 40,000 |
OAS Clawback Risk | Very Low | Low | Low–Medium | Medium |
RRIF is similar to a RRSP except that it’s setup for withdrawal and financial instituations retain a lower amount of tax upon withdrawal compared to a RRSP. You don’t pay more taxes either way at the end of the year but the intent in retirement is to get the most of your money and not wait for a refund at the end of the year.
What to Do Once You’ve Maxed Out TFSA, FHSA, and RRSP
Once you’ve filled all available registered room, your next step is non-registered (taxable) investing.
Key Account Strategies
Dividend Tax Credit: Canadian dividends in a taxable account are taxed at a preferential rate.
Focus on Capital Gains: Growth ETFs or stocks with low distributions defer tax until sale.
Asset Location:
RRSP → U.S. dividend payers.
TFSA → Canadian growth equities/ETFs.
Taxable → Canadian dividend stocks, broad ETFs.
Track Adjusted Cost Base (ACB) carefully.
Harvest Losses Strategically to offset gains.
💡 Did You Know? |
Comparing TFSA, FHSA, RRSP, and Taxable Accounts
Feature | TFSA | FHSA | RRSP | Taxable |
|---|---|---|---|---|
Contribution Limit | Annual set by gov’t ($7,000 in 2025). Cumulative: $102,000 since 2009. | $8,000 annual, $40,000 lifetime. | 18% of income up to $32,490 (2024). | Unlimited. |
Carry Forward | Yes, unused room carries forward. | Yes, but only within 15 years of opening. | Yes, indefinitely. | Not applicable. |
Withdrawals | Anytime, tax-free. Room restored next year. | Tax-free if used for first home; taxable otherwise (unless rolled to RRSP/RRIF). | Taxable as income; room lost permanently. | Taxable: dividends, interest, 50% of capital gains. |
Tax Treatment of Contributions | After-tax contributions, tax-free growth & withdrawals. | Contributions deductible (like RRSP), tax-free if used for first home. | Pre-tax contributions, tax-deferred growth, taxed on withdrawal. | No tax shelter: growth, interest, dividends all taxable annually. |
Best Investment Types | Canadian equities, growth stocks, ETFs. | Same as TFSA or RRSP (depends on goal). | U.S. dividend-paying stocks, bonds, global ETFs. | Canadian dividend stocks (tax credit), growth ETFs with low turnover. |
Foreign Withholding Tax Treatment | 15% U.S. dividend withholding tax applies (not recoverable). | Same as TFSA (withholding applies). | Exempt from U.S. withholding under Canada–U.S. treaty. | Withholding applies, but foreign tax credits can offset some taxes. |
Best Use Cases | Long-term compounding, emergency flexibility, retirement supplement. | Saving for first home; free RRSP rollover if not used. | Tax reduction for high earners, long-term retirement savings. | Extra savings once accounts are maxed, taxable but flexible. |
Unique Risks / Notes | Overcontribution = 1% penalty/month. | Must be first-time homebuyer; must close within 15 years. | Early withdrawals trigger withholding + tax; overcontribution penalty (1%/month). | Capital gains tracking (ACB); less efficient if high turnover. |
TFSA vs RRSP Growth Over Time
Carefully plan how to use the accounts together. Below is a table that shows growth and a scenario with withdrawals but it’s a simple decumulation scenario.
| RRSP + Tax Refund Spent | RRSP + Tax Refund in TFSA | RRSP + Tax Refund in RRSP | |
|---|---|---|---|---|
Pre-Tax Income | $10,000 | $10,000 | $10,000 | $10,000 |
Income Tax (40%) | $4,000 | $4,000 | $4,000 | $4,000 |
Net Income | $6,000 | $6,000 | $6,000 | $6,000 |
Contribution | $6,000 | $8,400 | $8,400 | $9,360 |
Tax Refund | $0 | $2,400 | $2,400 | $3,360 |
Value in 30 years @ 9% | $79,606 | $79,606 | $111,448 | $124,185 |
TFSA Gross Value | $79,606 | $0 | $31,842 | $0 |
RRSP Gross Value | $0 | $79,606 | $79,606 | $124,185 |
Tax on Withdrawal (40%) | $0 | -$31,842 | -$31,842 | -$49,674 |
Net Withdrawal Value (40%) | $79,606 | $47,764 | $79,606 | $74,511 |
Tax on Withdrawal (35%) | $0 | -$27,862 | -$27,862 | -$43,465 |
Net Withdrawal Value (35%) | $79,606 | $51,744 | $83,586 | $80,721 |
Tax on Withdrawal (30%) | $0 | -$23,882 | -$23,882 | -$37,256 |
Net Withdrawal Value (30%) | $79,606 | $55,724 | $87,567 | $86,930 |
Final Takeaway
For Canadians serious about building wealth, these accounts are non-negotiable:
TFSA = tax-free growth forever.
FHSA = first-home boost + RRSP safety net.
RRSP = tax-deferral and upfront refunds.
Non-Registered = the next phase once you’ve maxed the big three.
Master these accounts, avoid the pitfalls, and you’ll have a roadmap to financial independence.