How is a tax-free savings account (TFSA) different from an RRSP?

  • Contributions aren’t tax-deductible.
  • Withdrawals are tax-free and don’t reduce your contribution room.
  • You don’t need to have earned income to contribute.
  • You don’t have to convert your plan to an income payment option such as a registered retirement income fund (RRIF) when you reach age 71.

What Sun Life products can I hold in a TFSA?

*Insurance GICs are accumulation annuities issued by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies. Insurance GICs and segregated fund contracts are commonly registered as TFSAs themselves.

What else can I hold in a TFSA?

Despite its name, a TFSA isn’t just for cash in savings accounts. You can also hold investments such as bonds, stocks, mutual funds and exchange-traded funds in a TFSA. You don’t have to pay tax on your investment growth within a TFSA – unless you hold U.S. dividend-paying stocks, which are subject to withholding tax in a TFSA (but not in an RRSP). Talk to your advisor for the full explanation.

Can I open a TFSA with my spouse?

No. Tax law only permits individual plans. Your spouse can open a plan in his or her own name.

Can I have a spousal TFSA, similar to my spousal RRSP?

No. Tax law only permits individual plans – but you can give your spouse money to deposit into his or her own TFSA plan.

Can I transfer money from an RRSP to a TFSA?

Not directly. You first have to take it out in cash and pay tax on it, and you’re bound by the TFSA contribution limit. Better choices for RRSP money are a registered retirement income fund (RRIF) or an annuity, or both. But if you have the contribution room, a TFSA is a good place to put annuity payments or money you’ve been required to take out of your RRIF, if you don’t need it right away. It can grow tax-free, there’s no age limit, it won’t affect your eligibility for Old Age Security (OAS) and you won’t be taxed again when you withdraw it.

Can I appoint a beneficiary?

Yes. Accumulation annuities and segregated fund contracts that life insurance companies offer let you appoint a beneficiary. Guaranteed investment certificates and mutual funds also let you appoint a beneficiary for registered money, unless you live in Quebec.

What options do my beneficiaries have after I die?

If your spouse is the only beneficiary on your plan, he or she can choose one of the following:

  • Choose to become the plan holder (owner) of the plan.
  • Take the value of the policy in cash.
  • Transfer the value of the plan into his or her own TFSA without affecting his or her contribution room.

If your beneficiary is not your spouse, the value of the plan (as specified in the terms of your contract) is paid directly to your beneficiary in a lump sum. Your beneficiary will be taxed on any interest or investment income earned on this amount after the day you die.

After I die, will the money in my TFSA be taxable?

When you die, your TFSA’s tax-free status will end unless it’s rolled over to your spouse, and your beneficiary (or your estate, if you haven’t named a beneficiary) will be taxed on any investment income or interest earned after the day you die. Your beneficiary (or the executor of your estate) will have to pay this tax (or arrange for it to be paid out of your estate) by the end of the calendar year following the year you die.

What happens to my TFSA if my marriage or common-law partnership breaks down?

You may transfer the assets in a TFSA between spouses or common-law partners if the marriage or partnership breaks down. This transfer won’t create contribution room for the transferring spouse, and it won’t reduce contribution room for the receiving spouse.