# RRSP vs TFSA vs FHSA: Which Account Should Newcomers Use First? # RRSP vs TFSA vs FHSA: Which Account Should You Open First? Canada gives newcomers three powerful registered accounts — and most people open the wrong one first. Here's a clear priority framework based on your income and goals. --- ## What Each Account Actually Does ### TFSA — Tax-Free Savings Account - Every dollar you earn inside a TFSA grows **completely tax-free**, forever - Withdrawals are **never taxed** and can be re-contributed the following year - You accumulate contribution room from the year you turn 18 **and become a Canadian resident** - 2024 annual limit: **$7,000** (cumulative room if you've been a resident since 2009: $95,000) - No income requirements — works at any income level ### RRSP — Registered Retirement Savings Plan - Contributions reduce your **taxable income** in the year you contribute - Growth is tax-deferred — you pay tax when you withdraw (ideally in retirement, at a lower rate) - Contribution room = **18% of your previous year's earned income**, up to $31,560 (2024 limit) - Withdrawals are added to your income — timing matters - Newcomers **do not accumulate RRSP room before becoming Canadian residents** ### FHSA — First Home Savings Account - Brand new as of 2023 — designed specifically to help Canadians buy their first home - Combines the best of both: **contributions are tax-deductible (like RRSP)** and **withdrawals are tax-free (like TFSA)** when used to buy a qualifying home - Annual limit: **$8,000**, lifetime limit: **$40,000** - Must be a first-time homebuyer (cannot have owned a home you lived in within the past 4 years) - Unused annual room carries forward by $8,000 (maximum) --- ## The Priority Framework ### If You're Earning Under ~$55,000/year → Start with TFSA At lower incomes, your marginal tax rate is modest. RRSP deductions aren't as valuable — a $5,000 RRSP contribution only saves you ~$750 in taxes at a 15% marginal rate. Your TFSA grows tax-free and gives you flexible access to cash without triggering income. **Open a TFSA first.** Fill it with low-cost index funds (VEQT or XEQT) or a high-interest savings account if you'll need the money soon. ### If You're Planning to Buy a Home Within 5 Years → Open the FHSA Immediately The FHSA is time-sensitive. The sooner you open it, the more room you accumulate. If you open it today and buy a home in 3 years, you could have deposited up to $32,000 (4 years × $8,000) and claimed every dollar as a tax deduction — while your withdrawals are completely tax-free. **Open the FHSA the moment you arrive in Canada** if homeownership is even a 5-year possibility. You don't have to contribute the full $8,000 right away — just open it to start the clock. ### If You're Earning Over ~$90,000/year → Prioritize RRSP At higher income brackets (Ontario's combined marginal rate hits 43.41% at $100,000), an RRSP deduction is worth serious money. Every $1,000 contributed saves you $434 in taxes. Invest that refund back into the RRSP and you're compounding a significant tax advantage. **Contribute to RRSP, reinvest the refund, and let time do the work.** --- ## The Newcomer Wrinkle: Contribution Room You accumulate **TFSA room from the day you become a Canadian resident**. RRSP room is based on your previous year's Canadian earned income — so your first year in Canada, you likely have little to no RRSP room. **Most newcomers should open a TFSA and FHSA in Year 1, then layer in RRSP contributions as their income grows.** --- ## The Three-Account Stack (The Ideal Setup) | Account | Priority | Why | |---|---|---| | FHSA | Open immediately | Tax deduction + tax-free growth, clock starts now | | TFSA | Fill next | Tax-free growth, flexible withdrawals | | RRSP | Add once income > $55K | Powerful at higher marginal rates | --- ## Common Mistakes to Avoid - **Over-contributing to RRSP at low income**: You're trading a small deduction now for taxable withdrawals later - **Not opening FHSA early enough**: You can't backfill missed years (only 1 year carries forward) - **Keeping cash in a chequing account instead of a TFSA**: Even a high-interest savings account inside a TFSA beats a regular account - **Withdrawing TFSA and not tracking re-contribution room**: You get the room back January 1 of the following year — not immediately --- ## Quick Action Plan 1. **Day 1**: Open a TFSA and FHSA at your bank or Wealthsimple 2. **Contribute $500–$1,000 to each** to get started (even small amounts start the compounding clock) 3. **File your taxes** — you'll need a Notice of Assessment to confirm RRSP room 4. **Revisit your strategy** each January when new contribution room opens Three accounts, one priority order, and years of tax-free compounding ahead of you. --- *Written by [Raunaq Singh](https://maplesyrupmoney.com/about), Founder of [Maple Syrup Money](https://maplesyrupmoney.com).* [Connect on LinkedIn →](https://www.linkedin.com/in/raunaq-singh-digital/) Follow us: [Instagram](https://instagram.com/maplesyrupmoneydotcom) · [Facebook](https://facebook.com/maplesyrupmoneydotcom) · [LinkedIn](https://www.linkedin.com/company/maplesyrupmoney)