TFSA Essentials
What is a Tax-Free Savings Account?
A Tax-free Savings Account (TFSA) is an account that lets your deposits grow quickly through tax-free compounding. You pay no income tax on investment returns earned in the account, and there are no taxes on amounts you withdraw.
How can it help me?
A TFSA makes sense for just about everybody. Anyone who earns taxable interest in a simple bank savings account can turn it into tax-free interest with a TFSA. Whether you’re saving for travel, home renovations, your children’s education or your own retirement, a TFSA is a good idea.
A TFSA is especially well suited to:
- Those who have maximized their Registered Retirement Savings Plan (RSP) contributions and want additional latitude for tax-advantaged savings.
- Those who want access to tax-free savings before retirement. Unlike an RSP, you can withdraw money from a TFSA at any time without tax consequences. If you have already maximized your TFSA contribution, you must wait until the following year before contributing anything more to your TFSA in order to avoid penalty charges from the Canada Revenue Agency (CRA).
- Seniors worried that investment income could have a negative impact on government benefits or tax credits that are reduced or eliminated at higher income levels. These include Old Age Security (OAS) benefits, the Guaranteed Income Supplement (GIS) and the federal age credit. Withdrawals from a TFSA have no impact on eligibility for these “income-tested” benefits.
Who can have a TFSA?
Any Canadian resident over the age of 18 with a social insurance number can open a TFSA. There is no minimum contribution required to start an account, and you can contribute as much as $5,000 every year.
For more information, read our TFSA Frequently Asked Questions.
