Tax-Free Savings Account (TFSA)

Pay now, party later

TFSA is short for Tax-Free Saving Account.

The name is slightly misleading because a TFSA is really an investment account that can hold all the same types of investments as an RRSP.

Why you should have one

With a TFSA, you’ll have to invest after-tax dollars when putting money into the account since there is no tax deduction, unlike an RRSP. On the flip side, the advantage is you can earn investment gains in your account and never pay tax on them. For example, if you invested $5,000 and it grew to $10,000, you could walk away with the whole $10,000. No taxes, no catches.

What you need to know

Similar to an RRSP, there is a limited amount of contribution room. For 2018, the amount is $5,500 (with the contribution limit moving up to $6,000 in 2019). Also similar to an RRSP is the fact that you can carry unused room forward. If you’ve never contributed to a TFSA before, you should have more than $60,000 of contribution room available based on the annual limits set since they were introduced in 2009.

A neat feature of TFSAs is that you get your contribution back when you make a withdrawal. Take $5,000 out this year, and you’ll have an extra $5,000 of contribution room available for next year.

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