Focus: Where Should Your Next Dollar Go?
When you have a surplus of cash, deciding which "bucket" to fill first can be paralyzing. Here is the professional framework we use to advise our clients:
1. The Priority Hierarchy
If you are a first-time home buyer, the FHSA is the clear winner. You get the tax break today and the tax-free growth tomorrow. It is the only account that offers a "double" tax benefit.
2. The Income Level Test
Income under $50,000: Focus on the TFSA. Your tax bracket is currently low, so an RRSP deduction isn't very valuable. Save your RRSP room for when your income grows in the future.
Income over $100,000: Focus on the RRSP. The tax savings at this level are substantial (often 40% or more depending on your province).
3. Flexibility Needs
If you think you might need the money for a car, a wedding, or a renovation in the next 5 years, the TFSA is your best friend. RRSP withdrawals (outside of the HBP) are heavily taxed and you lose that contribution room forever.
| Feature | TFSA | RRSP | FHSA |
|---|---|---|---|
| Primary Goal | Flexibility/Mid-term | Retirement/Long-term | First Home |
| Tax Benefit | Tax-free growth | Tax deduction today | Both |
| Withdrawal Tax | $0 | Taxed as income | $0 (for home) |
