TFSA and Guaranteed Income Supplement: Where to Save

Ginette is 71 and lives alone in Trois-Rivières. Her twelve-year-old car is not worth another repair, and the one she found costs $8,000. She can take the money out of her RRIF, where she has $50,000, or out of her TFSA, where she has $12,000. At the bank, they ask her which of the two.

For her bank, it is a formality. For Ginette, the answer decides her next year. Ginette receives the GIS, the Guaranteed Income Supplement, which is calculated on the income she had the previous year. If she takes the money out of her RRIF, she pays about $500 in tax. Starting in July of the following year, her supplement drops from about $440 to about $80 a month for a year.

In our article on the GIS, we explained it with a scale. Every July, Service Canada weighs your income from the previous year, and the supplement makes up what is missing: the more your income weighs, the less it makes up. What comes out of the RRIF goes on that scale; what comes out of the TFSA does not. You can use that difference in two ways: if you already receive the GIS, and if you are still saving.

What the TFSA does not put on the scale

The GIS is calculated on your net income for the previous year, the one on your tax return, not counting OAS. The balance in your accounts does not enter that calculation: the Old Age Security Act only measures income. What counts is what goes on your tax return: the QPP pension, what you take out of your RRSP or your RRIF, and the interest on your savings outside registered accounts. The TFSA does not go on your tax return, not when it earns interest and not when you take money out of it.

The GIS doesn't weigh what you have. It weighs what you declare.

Three TFSA rules make it useful after 65:

• It has no maximum age. You can open one and contribute from age 18, as long as you are a resident of Canada and have a social insurance number. Unlike the RRSP, which closes at 71, it has no closing date.
• Room accumulates from age 18, or from 2009 if you were already older, even if you never opened the account. If you never contributed, you have all the room accumulated since then, and the exact figure appears in your Canada Revenue Agency online account.
• Every withdrawal is added back to your room on January 1 of the following year. Taking out $8,000 today does not take those $8,000 of room away from you for good.

If you already receive the GIS: the interest that weighs

Back to Ginette. She has a QPP pension of $8,400 a year and full OAS. She takes $3,000 a year out of her RRIF, a little more than the minimum the law requires at her age. Outside the RRIF and the TFSA, in a non-registered account, she has $40,000 in a bond fund that pays her 3% interest: $1,200 a year.

For the GIS, Ginette has $12,600 of income: the QPP, the RRIF and that interest. Using the figures for October to December 2026, she is entitled to a supplement of about $440 a month, about $5,240 a year. Adding OAS, her income is about $21,750 before the supplement, and she pays no tax. In 2026, the age and pension credits, plus Quebec's credit for living alone, cover the tax up to about $27,660 of income. The supplement does not count for that: it is reported and then deducted, so with it Ginette lives on about $27,000 a year.

The $1,200 of interest is on the scale. At her income, every dollar takes 50 cents off her supplement, as we explain in how the GIS is calculated. That interest costs her $600 of GIS a year.

Ginette has plenty of TFSA room. If she moves the bond fund from her non-registered account to her TFSA, the same $1,200 of interest stops weighing. Her supplement goes up $600 a year, about $50 a month, and stays there as long as her income does not change.

Moving a fund into the TFSA counts as selling it at that day's value. If it has gone up since she bought it, the gain is reported that year and weighs only once. If it has gone down, the loss cannot be deducted.

The effect arrives a year late, because the scale weighs the previous year. The interest the fund paid outside the TFSA that year still counts. The first July after a full calendar year inside the TFSA, the supplement goes up.

The RRIF works differently. Every withdrawal goes on the scale regardless, even if she saves it. However, if she does not spend all she takes out, what is left over can go into the TFSA instead of a non-registered account. The withdrawal already weighed that year, but what that money earns afterwards does not go on the scale.

Ginette's car: the same expense, two costs

Now the car. If Ginette pays for it from her RRIF, her income that year rises to about $30,300 with OAS, and crosses the threshold where she starts paying tax. To keep $8,000 after tax, she has to withdraw about $8,500: about $500 of that is tax, at the 2026 federal rates and Quebec rates.

The second bill arrives in July of the following year. Service Canada weighs that year and finds $8,500 more. At 50 cents per dollar, her supplement drops about $4,250 over twelve months, about $355 a month. It goes from about $440 to about $80. Our RRIF calculator, with Ginette's data, reaches the same result.

What if she takes the money from the TFSA instead? None of that happens. There is no tax, the scale does not move and her supplement stays the same. On January 1 of the following year, the $8,000 of room is available again. Not before: if she puts it back into the TFSA the same year without other free room, the excess is subject to a tax of 1% per month.

The table does not tell the whole story. Paying from the TFSA does not erase the $8,500 from the RRIF: it is still there, and it will come out little by little with each year's minimum. When it does, it will weigh 50 cents per dollar, just as it does today.

Ginette avoids something else: paying it all at once. The $500 of tax only exists because she concentrated the withdrawal in one year; spread out with the minimum, that money stays below the tax threshold. And a supplement of $80 a month for a whole year is hard to manage when the supplement is a large part of what you live on. Also, whatever is left in the RRIF at death is reported on the final tax return and never goes on the GIS scale.

Order matters with small accounts too. Which one to empty first is covered in the withdrawal order in Quebec. For someone who receives the GIS, the short answer is this: the RRIF comes out little by little, what you need each year, and large expenses come out of the TFSA.

If you are still working: TFSA before RRSP

Mathieu is 41 and works as a cook in a seniors' residence in Sherbrooke. He lives alone, earns $36,000 a year, has no pension plan at work and sets aside $250 a month. He figures that at 65 the QPP will give him about $11,500 a year, in today's dollars, and his savings about $5,000 more.

If that $5,000 comes out of a RRIF, his income for the GIS will be about $16,500. If it comes out of the TFSA, it will stay at the $11,500 from the QPP. Either way, Mathieu falls within the GIS range. A single person stops receiving it at $23,112 of income a year not counting OAS, using the October to December 2026 figures. Every dollar he takes out of a RRIF will cost him 50 cents of supplement.

In our article on the TFSA and the RRSP, we compared your rate when you contribute with your rate when you withdraw. When he contributes, the RRSP gives Mathieu back about 25.7 cents per dollar: his 2026 tax rate, federal and Quebec. When he withdraws, the rate also includes the GIS he loses.

For every $1,000 of salary he sets aside, this is what he has left to spend in retirement, depending on where his income lands. We do not count investment growth, which is the same in both accounts. We use the 2026 tax rules and the GIS rules for October to December 2026:

In the TFSA, Mathieu contributes $743: the $1,000 minus the tax. When he withdraws it, the scale does not weigh it. In the RRSP, he contributes the full $1,000, but when he takes it out he loses half or more to supplement and tax. With the income he expects, Mathieu lands in the second row: for every $100 the TFSA leaves him, the RRSP leaves him about $67.

Only in the last row do they tie, when retirement income goes past the GIS cut-off. There, the usual comparison between the two rates comes back. That is why the deciding question is a different one: are you going to receive the GIS?

There are three cases where the RRSP still makes sense:

• Your employer contributes. If your employer matches what you put into a group RRSP, add that contribution before comparing. With a matching contribution, each $1,000 from Mathieu would become $2,000 in the RRSP, and the second row would leave him $1,000, more than the $743 from the TFSA. We explain it in employer plans in Quebec.
• Your salary is going to rise. RRSP room you do not use is not lost: it accumulates. If you earn more in ten years, you can contribute it then, with a bigger deduction and a retirement further from the GIS.
• You already have an RRSP. There is no need to close it. Taking it out before 65, at the tax rate on your salary, is what Normand did in our article on the GIS, and it left him about $31,000 more at 90.

Ginette's and Mathieu's figures are for a single person, under the 2026 rules, and they measure one year at a time: we did not simulate their whole lives, as we did with Normand. For a couple, the scale weighs both incomes together, and the amounts change. If both receive OAS, the GIS runs out at $30,528 of combined income, using the October to December 2026 figures.

Ginette no longer decides where to save, but she does decide where she takes out what she saved. Mathieu still decides where to put it. Both are protecting the same thing: a supplement meant to make up what is missing, still there to make it up every July, when the scale does the math.