Tax-Free Savings Account (TFSA)
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A Tax-Free Savings Account (TFSA) is a registered, tax-advantaged account in Canada that allows individuals to save and invest money tax-free. Unlike an RRSP, contributions are not tax-deductible, but withdrawals (including investment growth) are completely tax-free.
Why a TFSA is Important
1
Tax-Free Growth
Investment income — including interest, dividends, and capital gains — grows tax-free, maximizing compounding.
2
Flexible Withdrawals
You can withdraw funds at any time for any purpose (retirement, purchase, vacation, emergency expenses) without tax penalties.
3
Contribution Room Restores
Any amount withdrawn is added back to your TFSA contribution room the following calendar year.
4
No Impact on Government Benefits:
Withdrawals do not affect eligibility for benefits such as OAS (Old Age Security) or GIS (Guaranteed Income Supplement).
5
Long-Term Wealth Building
Perfect for both short-term goals (saving for a car, travel) and long-term goals (retirement, investing) thanks to tax-free compounding.
Key Features of a TFSA
Tax Treatment
Contributions are not tax-deductible, but growth and withdrawals are tax-free.
Contribution Room
Annual limit set by CRA ($7,000 for 2024). Unused room carries forward indefinitely. Lifetime room (2009–2024) = $95,000 if eligible every year since 2009.
Eligibility
Available to Canadian residents age 18+ with a valid SIN.
Investment Flexibility
Can hold savings accounts, GICs, stocks, bonds, ETFs, mutual funds, etc.
Withdrawal Flexibility
Withdraw anytime, for any purpose, with no tax penalty.
Room Replenishment
Amount withdrawn is added back to contribution room next year.
No Age Limit
No forced withdrawals or conversion (unlike RRSPs that must be converted by 71).
No Impact on Benefits
Withdrawals don’t count as taxable income and don’t affect income-tested benefits.
Transferability
Can be transferred between financial institutions or to a spouse tax-free (under attribution rules).
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