Maximize your TFSA First

I believe most people should completely maximize their TFSA before they contribute to their personal RRSP.

The Exception: Work RRSPs Versus Personal RRSPs


There’s one exception. Some people’s work company pension plan is called a Group RRSP. Rather than having a defined contribution or defined benefit pension plan at work, they contribute money to an RRSP through their employer. The employer may also contribute to this same RRSP. I think employees should contribute to a Group RRSP if that is the only type of pension plan offered at work. In that case, the person should contribute to their work RRSP and then try to maximize their TFSA next, before starting a personal RRSP.

Maximizing a TFSA Doesn’t Require Much Money

As of January 2013, the most a person can contribute to a TFSA if he or she was 18 in 2009 is $25,500. (That does not include re-investing any money withdrawn from the TFSA in previous years.) Younger persons can contribute less.

Personally, I think everyone needs at least $25,000 in savings ready to help with regular living emergencies. If someone loses a job they may need savings to pay the bills until they find new work. Very few people find EI benefits are high enough to maintain their standard of living.

As of February 2014, the maximum a person can contribute if he or she was 18 in 2009 and lived in Canada the whole time since is $31 000. That’s still not much savings.

The savings are also intended to be a personal “reserve fund” for major expenses. For example, most homeowners will  need a new roof every 15-20 years. That means each year they should be saving some of the cost of that new roof. Many people also own cars. That means saving every year to be ready to buy one in 10-15 years when the current car wears out.

While saving for retirement is very important, I think it’s unnecessary to save in an RRSP when there is still room in a TFSA. Both allow investing in everything from cash and GICs, to bonds and bond funds, to shares and stock ETFs.

What Should I Do Once I Have Contributed my Maximum Allowable Amount to my TFSA?

Once a person’s TFSA is fully funded, it’s time to start an RRSP. How? I’ve written a series of posts on where to invest and in what, called Retirement Strategies. I invite you to read those articles and consider my approach.

Until you have more than $25,000 in savings I cannot personally see why you need to have an RRSP. (Disagree? Convince me with a quick comment!)


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Do you agree that people should top up their TFSA before they rev up their RRSP? Please share your experiences with a comment.

2 thoughts on “Maximize your TFSA First

  1. I always max out my TFSA first, but make sure I get the maximum matching contribution on my group RRSP from work first. I think in the future when I’m making more income and getting taxed at close to 50% I might take a more balanced approach. I plan to withdraw from both my TFSA and RRSP accounts when I retire :D

    • Sounds like a good strategy! With luck, when your tax bracket is higher you can max out your TFSA and your RRSP. (Hey, we’ve got to dream right?!)

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