What is a TFSA?
A Tax-Free Savings Account (TFSA) is a way for individuals who are 18 or older with a valid social insurance number (SIN) to set money aside as well as earn money tax-free throughout their lifetime. Any amount you contribute in addition to the income earned in the account is typically tax-free, even when you withdraw it. Your TFSA may not be entirely tax-free in certain scenarios, like contributing more money than the limit allows or holding non-qualified investments. Following the rules and limits set by the Canada Revenue Agency (CRA) can ensure your TFSA remains tax-free.
Use your TFSA to save for a specific goal like the purchase of a new car, renovations to your home, starting a small business, taking a vacation, or building an emergency fund. Since you can withdraw funds from your TFSA whenever you want, it makes this account ideal for your short- and long-term goals.
Why choose an TFSA?
Easy access
No penalties or conditions when you withdraw.
There are no penalties or conditions when you withdraw your money. The money is yours and you're free to access it. However, there could be conditions on withdraw periods.
Tax-free money
Growth of all your assets is tax-free.
The single biggest benefit is that the growth of all your assets is tax-free – you don't pay a penny in income tax, even when you withdraw from your account.
For more than just cash
Hold stocks, bonds and mutual funds too.
It's so much more than a savings account – investment products such as stocks, bonds and mutual funds can be held in your TFSA account resulting in higher earning opportunities.
Is this right for you?
Right for you if:
- You're looking for flexibility. TFSAs are flexible accounts that can be used for both short-term and long-term financial goals, like saving for a vacation or a down payment on a house.
- You don't want to be taxed. Seems like a no brainer, right? If you want to earn investment income and capital gains without paying taxes on the growth, a TFSA is a valuable tool.
- You're seeking some diversity. TFSAs complement other savings and investments tools, helping you diversify your financial assets. When you spread your investments across different account types, you can manage your risk and optimize your strategy.
May not be right for you if you:
- You want a tax break. If you want immediate tax deductions for your contributions to investments, a TFSA isn't the right choice. Contributions to a TFSA are made with after-tax dollars, meaning you don't get a tax deduction when you contribute.
- Retirement savings is a priority. If your primary goal is to save for retirement, an RRSP may be a better fit for you. RRSP contributions can reduce your taxable income, which can result in larger tax refunds and you can defer the taxes until retirement when your income may be lower.
Tools to help you reach your goals.
Common questions.
Here’s what people ask us the most.
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Your annual TFSA contribution limit is set by the Government of Canada and can change each year. Your available contribution room may also include unused room carried forward from previous years. Visit https://www.canada.ca/ to learn more.
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Yes. If you don’t use all your available contribution room in a year, the unused amount carries forward and can be used in future years.
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Yes. You can withdraw money from your TFSA when you need it. Any amount withdrawn is added back to your available contribution room in the following calendar year.
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Your contribution room depends on your age, residency status, past contributions and withdrawals. You can check your available room through your CRA My Account and by tracking your contributions and withdrawals.
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The right choice depends on your goals, income, timeline and financial situation. A TFSA may be a good fit if you want flexibility and tax-free withdrawals, while an RRSP may be better suited for retirement savings and potential tax deductions. A Conexus Advisor can help you compare your options.
We're here to help.
Not sure which investment option is right for you? Our advisors can help you understand your choices, explore different options and create a plan that fits your goals and financial situation.
