Tax-free saving account (TFSA)
Let your money bring your goals closer
Take advantage of the flexibility to access your savings for what you want, when you need it.
Versatile
It’s set up for short and long-term goals so you can use your money for what you really want.
Access your money tax-free
Your money can grow in your account and you can withdraw it tax-free when you need it.
Get contribution room back
When you take money out, that room gets added back the next year so you can use it again.
What is a tax-free savings account?
Despite its name, it’s not a typical savings account – it’s a place where you can put investments like mutual funds or segregated funds.
It’s versatile, so you can use it to save for a more immediate goal, like saving for a new car or a trip, but you can also use it to save for your retirement. Its partner, the RRSP, on the other hand, is just typically used for long-term investing.
How does it work?
- When you’re 18 and have a valid Social Insurance Number, you can open a TFSA with help from an advisor who can set you up with investments that meet your goals.
- You can contribute monthly but make sure to stay within the yearly limits, which is $6,500 for 2023. Your contributions aren’t deductible for income tax purposes.
- Your investments can grow tax-free.
- Withdraw your money tax-free when you’ve reached your goal or if something unexpected happens.
- After you take money out, your contribution room is restored in the following year, so you can put the money back (recontribute) then with no penalties.
- If you skip a year, or even 10, unused contribution room just rolls over to the next year.
Is a TFSA a good choice for you?
It’s a perfect option if you:
Want to save but might need quick and easy access to cash.
Just started working but don’t earn enough to benefit from RRSP tax breaks.
Have a financial goal in mind, like buying a car or a house.
You want your savings to grow tax-free and be able to take out money without paying taxes on investment income.
Looking for an investment account to complement your RRSP.
How can you open a TFSA?
It’s easy to open a TFSA. There are 3 main criteria:
- 18 or older
- Have a Canadian social insurance number
- Are a Canadian resident
How much money can you put in a TFSA?
The Canada Revenue Agency (CRA) allows a specific amount of contribution room each year. Contribution room is cumulative so any room from previous years continually carries over – meaning you can continue contributing as your total contribution room grows annually. For instance:
2023 annual contribution limit - $6,500
Total cumulative contribution room available in 2023 - $88,000 (for someone who has never contributed and turned 18 before 2009)
You can have multiple TFSAs – just know that the annual limit applies to the total amount you contribute, not to each TFSA individually.
Find your own limit
You can find out how much money you’re currently allowed to contribute to a TFSA by signing into the Canada Revenue Agency website - Opens in a new window.
What can you put in a TFSA?
You have plenty of investment options you can put in a TFSA:
Want to withdraw money from your TFSA?
After you withdraw money from your account, you can put the whole amount back whenever your want and still save the maximum every year.
You can generally withdraw as much as you want
It doesn’t reduce the total amount of contributions you have already made for the year
The amount you withdraw is added to your contribution limit the next year
Frequently asked questions
Have a savings plan through your employer?
Use your online account to check your balance, make additional contributions, manage your personal information and more.
Do you need a TFSA or an RRSP?
At the end of the day a TFSA and an RRSP both help you do the same thing – allow you to save money for the future. But they do it in different ways, so depending on your circumstances, having both can help you achieve your goals.
| RRSP | TFSA | |
|---|---|---|
| How do you start one? | You earned an income and filed your income taxes for the previous year | Automatically if you’re 18 or older, have a valid social insurance number and are a Canadian resident |
| How long can you contribute? | Dec. 31 of the year you turn 71 | For life |
| What’s the contribution deadline? | March 1, 2023 to claim a deduction for the previous year | Not applicable as contributions aren’t deductible |
| What’s the contribution limit? | The smaller amount of 18% of your earned income last year or 2022’s annual limit of $29,210 plus any unused carry-forward contribution room, less any pension adjustments | $6,500 for 2023, plus any withdrawals in a previous year and any unused contribution room carried forward from the previous year |
| What happens if you withdraw money? | Contribution room is permanently lost | Never lose contribution room. It’s re-added on Jan. 1 of the following year |
| What are the upfront tax advantages? | Lower your taxable income for the current year | None because contributions are made with after-tax income |
| What are the future tax advantages? | Any income earned in your RRSP is usually free from tax as long as it stays in the plan. Every dollar you withdraw is taxed at your marginal tax rate, which is usually lower when you’re retired. | You generally won’t pay tax on any income earned in the account or the money you withdraw. There aren’t any tax consequences if you need to use your savings for emergencies or short-term expenses. Withdrawals aren’t considered income, so this money isn’t included when the government calculates benefits like Old Age Security, Guaranteed Income Supplement, GST/HST credits and other credits/benefits like the Age Credit. |
| Bottom line | Can provide greater short- and long-term tax benefits but is less flexible because you have to pay income taxes on withdrawals | Doesn’t offer as many tax benefits, but is much more flexible because there are no tax consequences for withdrawals |
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
