RRSP tax refunds are not free money but rather a tax deferral mechanism where contributions reduce current taxable income while withdrawals are taxed at your future rate; if your retirement income is higher than your current income, the tax rate increase can offset the initial benefit, making TFSA withdrawals more advantageous when retirement income is similar to or higher than current income.
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RRSP Tax Refund Isn’t Free Money (Here’s Why)Added:
That RRSP refund isn't a bonus. It's your money, just taxed later. The deduction delays tax, then withdrawals are taxed at your future rate. If that rate is higher, the math flips. Priya earns 60,000 today, expects 70 in retirement. So, each RRSP dollar gets taxed more later. TFSA withdrawals don't add to income at all. Retire lower, RRSP wins. Same or higher, TFSA often wins.
The refund feels free. The bracket math isn't.
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