What is a TFSA?
Simply put, a tax-free savings account, or TFSA, is a type of savings account to help save for any need.
How does a TFSA work?
A TFSA doesn’t have to be a savings account at a bank. It can also contain a variety of investments like:
- mutual funds,
- GICs and
- exchange-traded funds.
Money, or contributions, that you put into a TFSA are made with after-tax dollars. This means you’ve already paid income tax, and won’t need to pay tax again when you make withdrawals in the future. Plus, you won’t pay tax on any investment growth in your TFSA.
Whether you’re saving for a dream vacation, your first home, or retirement – a TFSA can help.
What’s your TFSA contribution limit?
A contribution limit is the maximum amount you can add to your TSFA each year. The annual TFSA contribution limit varies from year to year. The federal government determines these limits. Although the TFSA contribution limit has varied throughout the years, it’s generally increased with inflation.
Your TFSA contribution room accumulates starting from the year you turn 18.* Let’s look at an example. Say you don’t have a TFSA and were 18 in 2009 (when the government introduced the TFSA). In this case, you’d have full contribution room available. The best way to find out how much you can contribute to your TFSA is through ‘My Account’ on Canada Revenue Agency (CRA).
(*You can only contribute to a TFSA for the years you are a Canadian resident.)
Whenever you need it, a TFSA is a smart way to save and see your savings grow – tax-free.
Need help getting started?
An advisor can help you build a savings plan that meets your goals and needs. Most advisors now offer to meet Clients virtually by video chat. Find an advisor today.
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