Tax-Free Savings Account (TFSA)

A Tax-Free Savings Account TFSA is a registered savings vehicle that allows you to invest at any age and earn tax-free income to help make your plans happen.

The TFSA is for Canadian residents aged 18 and over who want to build their savings tax-free.

Advantages

  • Maximize your tax-free savings, even if you've already maxed out your RRSP contributions
  • Grow your savings outside of an RRSP
  • Earn tax-free interest on investments in your TFSA, so your money grows more quickly than the same amount invested elsewhere with the same returns (Plus, when you make a withdrawal, you won't need to give any money to the taxman!)
  • Withdraw money from your TFSA without compromising your eligibility for or the amount of your income-tested credits and benefits, such as the Canada Child Tax Benefit, Old Age Security or Employment Insurance benefits
  • Continue to save even during retirement (Since there's no age limit for the TFSA, you can put aside some of your retirement income while enjoying tax benefits.)

Eligible savings products

FAQ

How does a TFSA work?

Unlike an RRSP, your TFSA deposits aren't tax-deductible, but the money you withdraw (including interest earned on your investments) isn't taxed.

When you make a withdrawal from your TFSA, it opens up the same amount of room in the account the following year so you can catch up on your contributions later.

How much can I contribute to my TFSA?

You can contribute up to $5,000 per year to your TFSA, and you won't lose your contribution room if you don't max it out. Any unused amounts will just be added to your limit for the following year. The same thing applies to withdrawals – whatever you take out you can put back in later on.*

For more information, see the Canada Revenue Agency (CRA) website.

*Some exceptions have been in place since October 2009.

What's the difference between a TFSA and an RRSP?

RRSPs are designed to encourage you to save for retirement. TFSAs, on the other hand, are designed to help you save for anything you want (including retirement).

What about taxes? With an RRSP, you get tax deductions or refunds when you contribute or file your return. TFSA contributions aren't tax-deductible, but you don't pay tax on any money you take out (unlike RRSP withdrawals, which are taxed).

Check out our TFSA vs. RRSP table for an overview of the main differences between the plans.

What happens to leftover contribution room?

You can carry forward any unused room to future years (indefinitely).

What happens if I take money out of my TFSA?

You'll pay no taxes on TFSA withdrawals. Better yet, when you take money out, the same amount of room is freed up the next year so you can recontribute later on.

What happens if I over contribute to my TFSA?

You'll have to pay a penalty of 1% per month on excess contributions until there is no longer an excess (i.e., the money is withdrawn or more room becomes available).

How old do I have to be to open a TFSA?

You have to be at least 18 years old to open a TFSA.

Even though you have to wait until your 18th birthday to open it, you can still contribute $5,000 for that year. For instance, if you'll be turning 18 on November 1, you'll have two months (until December 31) to contribute up to a maximum of $5,000.

Contribute early and often. Time is your friend when it comes to savings.

What is the age limit for contributing to my TFSA?

There's no age limit for TFSA contributions.

If I take money out of my TFSA, will it affect my government income-tested benefits or tax credits?

No, and that's one of the best things about it. You can take money out of your TFSA when you need it most. There are no tax consequences and it won't affect your eligibility for income-tested benefits!

This means that the investment income earned in your TFSA and your withdrawals won't affect income-tested benefits such as:

  • Old Age Security
  • Guaranteed Income Supplement
  • Employment Insurance

Similarly, TFSA withdrawals and investment income won't affect credits like the:

  • Canada Child Tax Benefit
  • GST credit
  • Working Income Tax Benefit
  • Age credit amount
  • Etc.

Check out the Canada Revenue Agency's (CRA) website for more information.

Can I contribute to my spouse's or my adult child's TFSA?

While you can't use your unused contribution room to contribute to your spouse's TFSA (like you can for an RRSP), there's another option. If you gift money to your spouse or adult child, they can contribute that money to their own TFSA.

Why should I save in a TFSA?

Have you ever had to rely on credit to make a major purchase? Then you know how frustrating it can be to have to make payments for what seems like forever. And the interest payments on top of it just add insult to injury.

When you've got money stashed away in a TFSA, you can pay off purchases sooner. Why pay interest on a credit card when the interest earned on your investment will grow tax-free? When the time comes to buy, you'll be able to pay for your purchases cash down.

How will I know if I'm saving enough?

Have your advisor enrol you in an automatic savings program. That way, you'll be saving a little at a time – so little you won't even miss it!