TFSAs

TFSAs, or Tax-Free Savings Accounts, are a Canadian registered savings vehicle administered by the Canada Revenue Agency. They allow investments to grow free of tax, and withdrawals are also tax-free. Contributions are not deductible for income tax, which makes TFSAs a flexible tool for short- or long-term goals.

Eligibility and contribution room depend on government rules. To contribute, you must be a Canadian resident aged 18 or older with a valid Social Insurance Number. Each year the government sets a contribution limit; unused room carries forward indefinitely. Withdrawals do not affect eligibility for benefits, but any amount withdrawn increases your available contribution room in the following calendar year.

Contributions must not exceed your available room. Over-contributing triggers a penalty of 1% per month on the excess amount until it is removed or offset by added room. If you contribute and later withdraw, the withdrawn amount can be re-contributed in a future year, but only up to your available room at that time.

Investments inside a TFSA can include cash, guaranteed investment certificates (GICs), bonds, stocks, mutual funds, and exchange-traded funds. There are no tax consequences for investment gains, interest, or dividends earned within the account, and there is no tax on withdrawals.

TFSAs are often used for emergency savings, short-term goals, or supplementary retirement planning. They complement other accounts such as RRSPs, since contributions are not deductible but growth and withdrawals are tax-free.