A $5,000 redraw can cost $30 a month
Maya begins 2026 with $9,000 of TFSA contribution room: the $7,000 new annual dollar limit plus $2,000 of previously unused room. She contributes $7,000 in January, leaving $2,000. In May she withdraws $5,000 to replace a car. If she puts that $5,000 back in July, she has contributed $3,000 above her remaining 2026 room. The Canada Revenue Agency charges 1% per month on the highest excess in each month, so a continuing $3,000 excess means $30 for that month. Her May withdrawal is added back as room on January 1, 2027, not the day she withdrew it.
That timing problem often matters more than an abstract “RRSP or TFSA?” verdict. The accounts have different tax treatment, but either decision begins with your actual available room, not the headline limit printed in an article. The CRA’s 2026 room guide confirms the annual TFSA dollar limit is $7,000 and tells savers to verify their own records rather than rely on a stale portal figure for current-year activity.
Why $33,810 is not your RRSP allowance
The CRA’s published 2026 RRSP dollar limit is $33,810. It is a national ceiling used in the calculation, not a personal deduction room granted to everybody. In broad terms, the new RRSP room for 2026 uses 18% of 2025 earned income, capped at $33,810, then accounts for a 2025 pension adjustment and any other applicable adjustments. Unused room from past years can carry forward. The controlling number is on your notice of assessment and CRA account, after you check employer pension records. See the CRA limits table and RRSP room explanation.
For example, Alex earned $100,000 in 2025 and has a $4,000 pension adjustment, with no older unused room or other adjustments. Eighteen per cent of $100,000 is $18,000; less the $4,000 adjustment gives $14,000 of newly generated 2026 RRSP deduction room. That is far below the $33,810 national ceiling. The adjustment represents workplace pension value for tax-assisted retirement saving; it cannot be ignored because a payroll system made it invisible to Alex.
Alex’s newly generated 2026 RRSP room
If Alex already has RRSP contributions made but not deducted, those affect what he can deduct now. A withdrawal from an ordinary RRSP does not simply recreate RRSP contribution room the following January. The Home Buyers’ Plan and Lifelong Learning Plan have special repayment regimes and should not be confused with ordinary withdrawals. Check the specific CRA programme before relying on a withdrawal to finance a new contribution.
The TFSA room clock is different
TFSA room across all accounts belongs to the person, not to each bank or brokerage. Your available 2026 room is unused carry-forward plus the $7,000 annual addition plus 2025 withdrawals re-added on January 1, minus 2026 contributions. A 2026 withdrawal waits until 2027 to come back. The CRA’s contribution guide states that rule directly.
| Maya’s 2026 action | Room available immediately afterward |
|---|---|
| Begins year with $7,000 new + $2,000 unused | $9,000 |
| Contributes $7,000 in January | $2,000 |
| Withdraws $5,000 in May | Still $2,000 |
| Redeposits $5,000 in July | $3,000 excess |
Maya’s TFSA room and July excess
The tax is based on the highest excess during each month, even if the excess is removed before month-end, according to the CRA’s excess-amount page. Removing it promptly can limit later months’ tax; merely leaving a TFSA open at another institution does not reset room. A bank-to-bank direct transfer follows a different process from withdrawing into a chequing account and redepositing; request the proper transfer form if moving providers. The CRA account’s TFSA room data can lag recent transactions, so retain your bank statements.
Tax now, tax later, and the first-home side route
An RRSP contribution within available room can give an income-tax deduction now. An ordinary RRSP withdrawal is generally included in income later. A TFSA contribution has no deduction, while investment growth and withdrawals are generally tax free. Those rules are explained in the CRA’s TFSA basics and registered-savings guidance. Neither account guarantees an investment return. A deduction can be more useful when the contribution reduces income taxed at a high rate, but future RRSP withdrawal taxes and benefits can alter the result. Compare tax rates from your own tax return rather than use a universal “RRSP always wins” rule.
An equal-budget illustration makes the trade visible. Suppose Maya can set aside C$10,000 of pretax income, faces a 30% current marginal tax rate, has enough RRSP room and is eligible for the deduction. She can put C$10,000 in the RRSP before current tax or pay C$3,000 of tax and put C$7,000 in a TFSA. With zero investment growth solely to isolate tax timing, a future 20% RRSP withdrawal tax leaves C$8,000, versus C$7,000 from TFSA. At a future 30% tax rate, they tie at C$7,000; at 40%, RRSP leaves C$6,000. These are assumed tax rates, not Canadian rate forecasts. Actual RRSP withdrawals can also affect income-tested benefits, while TFSA withdrawals are treated differently.
Equal C$10,000 pretax budget with zero growth
For an eligible first-time home buyer, a First Home Savings Account (FHSA) can add a different choice: the CRA describes $8,000 annual participation room and $40,000 lifetime limit for qualifying account holders. A qualifying withdrawal can be tax free, while contributions may be deductible. It is not an automatic third $8,000 for every RRSP/TFSA saver; opening date, eligibility and prior FHSA use matter. The CRA’s FHSA estimator can help check personal participation room.
A decision order that avoids the two common mistakes
First, get your RRSP deduction limit from the latest notice of assessment and check the underlying pension adjustment. Next, reconstruct your TFSA room from bank records, with current-year withdrawals held aside until next January. If home ownership is the goal, check FHSA eligibility separately. Only then compare whether an RRSP deduction now is valuable relative to later withdrawal tax, or whether TFSA access and tax-free withdrawals suit the money’s expected use.
It is worth testing the opposite timing to avoid confusing withdrawals across years. If Maya had taken $5,000 out in December 2025 rather than May 2026, that withdrawal would ordinarily already be added to her room on 1 January 2026. Her assumed opening room would then be $14,000, not $9,000, if all other facts stayed the same. The dollar amount of a withdrawal is identical; the calendar year determines whether it is available for a July 2026 contribution. This is why she needs dated transaction records.
This method also avoids promising a tax refund simply because an RRSP was funded. A deduction reduces taxable income; the actual tax reduction depends on the marginal rate and other income. Maya’s $5,000 TFSA withdrawal gives no new room until 2027, while Alex’s $33,810 headline RRSP limit gives him only $14,000 of new room under his stated pension facts. Those are the two numbers to verify before moving money.
