RRSP, TFSA, and RESP: A Complete Guide for Newcomers to Canada
By WelcomeAide Team
Quick Summary
- A TFSA lets you save and invest tax-free. The 2026 limit is $7,000 per year. You only accumulate room from the year you become a Canadian resident.
- An RRSP reduces your taxable income now and is best for higher earners saving for retirement.
- An RESP helps you save for your child's education, and the government adds up to $500 per year through the CESG.
- You can open all three accounts at any major Canadian bank or online brokerage.
- Filing your tax return every year is essential to build contribution room and access benefits.
Why Registered Accounts Matter for Newcomers
When you arrive in Canada, you will hear about registered accounts like the TFSA, RRSP, and RESP. These are special savings and investment accounts created by the Canadian government that offer significant tax advantages. For newcomers to Canada, understanding these accounts early can save you thousands of dollars in taxes and help you build wealth faster.
Many newcomers miss out on these benefits because the system is different from what they knew in their home country. This guide walks you through each account type, explains how they work, and helps you avoid the most common mistakes newcomers make with registered accounts in Canada.
The Tax-Free Savings Account (TFSA)
What Is a TFSA?
The Tax-Free Savings Account is one of the best financial tools available in Canada. Despite the name, a TFSA is not just a savings account. You can hold cash, stocks, bonds, mutual funds, exchange-traded funds (ETFs), and GICs inside a TFSA. The key benefit is that any income you earn inside the account, including interest, dividends, and capital gains, is completely tax-free. You also pay no tax when you withdraw money.
TFSA Contribution Limits for Newcomers
The annual TFSA contribution limit for 2026 is $7,000. However, as a newcomer, your contribution room works differently than for someone born in Canada. You only start accumulating TFSA room from the year you become a Canadian tax resident. If you arrived in Canada in 2025, your total room in 2026 would be $7,000 (for 2025) plus $7,000 (for 2026), totalling $14,000.
Important:
Do not assume you have the full lifetime TFSA room that Canadian-born residents have. Over-contributing results in a penalty tax of 1% per month on the excess amount. Check your exact room on your CRA My Account after filing your first tax return.
How to Open a TFSA
You need a valid Social Insurance Number (SIN) and must be at least 18 years old (19 in some provinces). You can open a TFSA at any major bank (TD, RBC, BMO, Scotiabank, CIBC), credit union, or online brokerage (Wealthsimple, Questrade). The process takes about 15 minutes.
- Visit a bank branch or sign up online with an investment platform
- Provide your SIN, government-issued ID, and proof of address
- Choose the type of investments you want to hold (savings, mutual funds, ETFs)
- Start contributing up to your available room
Tip:
If you are new to investing, consider a robo-advisor like Wealthsimple. It automatically builds a diversified portfolio based on your risk tolerance and charges lower fees than most mutual funds at the big banks.
When to Use a TFSA
A TFSA is ideal for most newcomers as a first registered account. Use it for short-term savings goals (emergency fund, car, vacation), medium-term goals (down payment on a home), and long-term investing (retirement, if your income is currently modest). Because withdrawals are tax-free and you can re-contribute the withdrawn amount the following year, the TFSA offers unmatched flexibility.
The Registered Retirement Savings Plan (RRSP)
What Is an RRSP?
The Registered Retirement Savings Plan is a retirement savings account that gives you a tax deduction when you contribute. If you earn $60,000 and contribute $10,000 to your RRSP, your taxable income drops to $50,000. This can result in a significant tax refund. The investments inside grow tax-free, but you pay income tax when you withdraw the money in retirement.
RRSP Contribution Room
Your RRSP contribution limit is 18% of your earned income from the previous year, up to a maximum of $32,490 for 2026 (based on 2025 income). Unused room carries forward. As a newcomer, you will not have RRSP contribution room until you have filed a Canadian tax return showing earned income. You can check your room on CRA My Account or on your Notice of Assessment after filing your taxes.
RRSP vs TFSA: Which Should Newcomers Prioritize?
This is one of the most common questions newcomers ask. The answer depends on your income level.
| Situation | Best Account | Reason |
|---|---|---|
| Income under $55,000 | TFSA first | Tax bracket is low, so RRSP deduction saves less. TFSA withdrawals are tax-free. |
| Income $55,000 to $110,000 | Both (RRSP and TFSA) | RRSP deduction becomes more valuable. Max TFSA first, then contribute to RRSP. |
| Income over $110,000 | RRSP first | High marginal tax rate means bigger refund. Maximize RRSP, then TFSA. |
| Planning to buy a first home | FHSA, then TFSA/RRSP | First Home Savings Account offers both a deduction and tax-free withdrawal for a home purchase. |
The Home Buyers' Plan (HBP)
The RRSP Home Buyers' Plan lets first-time homebuyers withdraw up to $60,000 from their RRSP tax-free to buy a qualifying home. You must repay the amount over 15 years, starting the second year after withdrawal. This can be a useful tool for newcomers saving for their first Canadian home. For more on housing, read our guide to finding housing in Vancouver.
How to Open an RRSP
The process is similar to opening a TFSA. Visit any major bank branch or sign up with an online brokerage. You will need your SIN and government ID. Make sure you have contribution room before depositing money. Over-contributions of more than $2,000 are penalized at 1% per month.
The Registered Education Savings Plan (RESP)
What Is an RESP?
If you have children, the Registered Education Savings Plan is one of the best ways to save for their post-secondary education. The main reason is the Canada Education Savings Grant (CESG): the federal government matches 20% of your contributions, up to $500 per year per child (on the first $2,500 you contribute). That is free money from the government.
CESG Details
The lifetime CESG limit is $7,200 per child. If your family income is below $55,867 (2026 threshold), you may qualify for the Additional CESG, which adds an extra 10% to 20% on the first $500 contributed. There is also the Canada Learning Bond (CLB) for lower-income families, which provides up to $2,000 per child with no contribution required from the family.
Did you know?
You can carry forward unused CESG room. If you missed a year, you can contribute $5,000 the next year and receive $1,000 in CESG (the maximum grant in a single year). This is especially useful for newcomer families who open an RESP a few years after arriving in Canada.
How to Open an RESP
You can open an RESP at any major bank, credit union, or online brokerage. You will need your child's SIN (apply for one at Service Canada after obtaining their immigration documents). There are two main types:
- Individual RESP: For one beneficiary. Flexible and easy to manage.
- Family RESP: Can have multiple beneficiaries (your children). Contributions and grants can be shared among siblings.
Important:
Avoid group or scholarship trust RESPs sold by companies like Heritage Education Funds or Knowledge First Financial. These plans have rigid rules, high fees, and you can lose money if your child does not attend a qualifying program. Stick with individual or family plans at a bank or brokerage.
The First Home Savings Account (FHSA)
A Newer Option for First-Time Buyers
Introduced in 2023, the First Home Savings Account (FHSA) combines the best features of the RRSP and TFSA. Contributions are tax-deductible (like an RRSP), and withdrawals to buy a qualifying first home are tax-free (like a TFSA). The annual limit is $8,000, with a lifetime limit of $40,000.
If you are a newcomer who has never owned a home in Canada or your home country (during the past four calendar years), you likely qualify. This account is especially powerful when combined with the RRSP Home Buyers' Plan, potentially giving you up to $100,000 in tax-advantaged savings toward a home purchase.
Common Mistakes Newcomers Make
Mistake 1: Not Filing a Tax Return
Even if you had zero income in your first year, file a tax return. Filing establishes your RRSP contribution room, registers you for the GST/HST credit, Canada Child Benefit, and provincial benefits, and allows CRA to calculate your correct TFSA room. Use free tax filing software like Wealthsimple Tax or visit a free tax clinic through the Community Volunteer Income Tax Program.
Mistake 2: Over-Contributing to a TFSA
Many newcomers assume they have the full lifetime TFSA room dating back to 2009 (when the TFSA was introduced). You only accumulate room from the year you became a Canadian tax resident. Over-contributing triggers a 1% monthly penalty on the excess. Always verify your room on CRA My Account before making large contributions.
Mistake 3: Keeping All Savings in a Regular Savings Account
A regular savings account at a Canadian bank earns very little interest (often 0.01% to 0.5%), and that interest is fully taxable. By putting the same money in a TFSA high-interest savings account or investing within registered accounts, you keep more of your returns. Even a TFSA savings account at an online bank like EQ Bank or Tangerine offers significantly higher interest rates.
Mistake 4: Ignoring the RESP
The CESG is free money. Even contributing $50 per month ($600 per year) earns your child $120 in government grants annually. Over 18 years, the grants alone can total thousands of dollars, not counting investment growth. Start early, even with small amounts.
Mistake 5: Not Understanding Withdrawal Rules
TFSA withdrawals are flexible, but RRSP withdrawals are taxed as income (except through the Home Buyers' Plan or Lifelong Learning Plan). Withdrawing from an RRSP to cover short-term expenses is costly. Use the TFSA for money you might need before retirement, and keep the RRSP for long-term retirement savings.
Step-by-Step: Getting Started with Registered Accounts
- Get your SIN: Apply at a Service Canada office. You need this for all registered accounts.
- Open a bank account: If you have not already, open a chequing account at a Canadian bank. Read our first weeks in Canada guide for details.
- File your first tax return: Even with no income. This establishes your RRSP room and government benefit eligibility.
- Open a TFSA: Start with this account. Set up automatic monthly contributions, even if it is just $50.
- Open an RESP if you have children: Contribute at least $2,500 per year per child to maximize the CESG.
- Open an RRSP once your income is established: Prioritize this when your marginal tax rate is above 30%.
- Consider an FHSA: If buying a first home is a goal, open this account to start accumulating room.
Key Phone Numbers and Resources
- Canada Revenue Agency (CRA): 1-800-959-8281 (individuals) - www.canada.ca/cra
- Service Canada: 1-800-622-6232 - www.canada.ca/service-canada
- RESP and CESG information: canada.ca/education-savings
- Free tax clinics: Community Volunteer Income Tax Program
- Financial Consumer Agency of Canada: fcac-acfc.gc.ca
Build Your Financial Future in Canada
Registered accounts are one of the greatest advantages of living in Canada. The tax savings compound over time, and programs like the CESG and Canada Learning Bond are genuinely generous. The most important step is to start, even with small amounts. Open your accounts, set up automatic contributions, and let time work in your favour.
WelcomeAide is here to help you navigate financial decisions and every other aspect of settling in Canada. Our AI Newcomer Navigator can answer your questions about registered accounts, taxes, and benefits in your preferred language. Learn more about our mission, explore our programs, or browse more newcomer guides on our blog.