The Tax-Free Savings Account (TFSA) is a registered investment account that allows money to grow without ever being subject to tax.
What that means:
The TFSA was introduced in 2009 to encourage Canadians to save more money. Unlike with a Registered Retirement Savings Plan (RRSP), where investors have to pay tax when they remove money from the account, the money inside of a TFSA can be withdrawn without penalty. That’s because deposits to a TFSA are made in after-tax dollars. The benefit of saving in a TSFA is growth: Capital gains, dividends or income on your investment are never taxed. Its tax-free status is advantageous, as all the growth on your investments remains in your hands. You can own nearly every kind of investment in the account, and, because you can easily remove and add money to it, it’s useful for both short-term and long-term savings. On the flipside, there are limits to how much you can invest: $6,500 for 2023, but any unused contribution room does accumulate starting the year people turn 18. If you haven’t yet contributed to a TFSA and were 18 or older in 2009, you will have $88,000 in total contribution room in 2023. (Annual limits don’t rise every year, but there have been increases over time.) A few things to keep in mind: If your contribution exceeds your annual or lifetime limit, you will get taxed on the overage, and while you can recontribute the money you’ve removed, you can only put it back starting on January 1 in the year after you withdraw funds.
The TFSA can be a powerful investment account that allows your money to grow tax-free forever.