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Q. I’m a 58-year-old surgical nurse retiring in July. My retirement pension will be roughly $55,000 annually and it will start paying out in September. I have $48,000 in unused registered retirement savings plan (RRSP) contribution room. Should I max out my contributions on my 2025 taxes? I have enough saved to do so. Or, should I stick to topping up my tax-free savings account (TFSA)? —Thanks, Richard in Ontario

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FP Answers: Richard, there are a few things to consider when deciding on an RRSP or TFSA contribution. The best place to start is with a good understanding of the math behind RRSPs and TFSAs.

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It is often said that RRSP contributions are made with pre-tax money and TFSA contributions with after-tax money. Although true by design, it is not true based on the way most people make RRSP contributions.

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Most people think, “I have $10,000, should I add it to my RRSP or TFSA?” If you are adding to your RRSP you will likely do it in one of three ways: you will gross up the amount (which I will explain later), you will reinvest the tax refund, or you will invest only the $10,000.

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The accompanying table illustrates the math behind a $10,000 contribution to a TFSA, and three RRSP contribution alternatives. I am assuming the full contribution and withdrawal is taxed at 30 per cent and the initial investment grows by 100 per cent over time.

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The results in the chart are showing no difference between TFSAs and RRSPs if you are grossing up (pre-tax) your RRSP contribution. You can also infer that if at the time of withdrawal you are in a lower tax bracket, the RRSP beats the TFSA and if in a higher tax bracket, the TFSA beats the grossed-up RRSP.

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Also apparent from the table is that if you are not grossing up your RRSP contribution the math favours a TFSA contribution.

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Grossing up your RRSP contribution means contributing an amount equal to what you had to earn before tax, to have $10,000 in your bank account. Here is the gross up formula: $10,000/(1-30 per cent (your marginal tax rate)). To get the extra $4,285 you can either borrow the money from a lender or from yourself and then pay it back when you get your tax refund.

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Richard, you may be questioning, if you maximize your $48,000 RRSP contribution how can you gross up your contribution? You can’t, but it is still important to understand the math behind contributions. You need to also be looking at the other benefits of making RRSP contributions.

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RRSPs and TFSAs are both tax shelters. However, you will likely stop earning RRSP contribution room once you stop working, whereas each year you will earn additional TFSA contribution room. Plus, this may be your highest income earning year. Based on that it may be best to maximize your RRSP and then use the tax refund to top up your TFSA.