How a TFSA can help you save

A Tax-Free Savings Account (TFSA) offers flexibility and convenience — plus the ability to accumulate earnings tax-free. This means it offers powerful savings possibilities for both shorter-term and longer-term goals.

The TFSA is a registered account that can be opened by Canadian residents with a Social Insurance Number who have reached the age of 18.1  Contribution room accumulates from the time you turn 18. Unlike a registered Retirement Savings Plan (RSP), contribution room is not based on earned income, and there is no upper age limit to the plan.

Benefits of a TFSA

The TFSA can be used to save for any number of things, such as a major purchase, a vacation or retirement, or as a rainy-day fund.

There are many benefits of using a TFSA to save:

• Tax-free growth. You pay no tax on the investment income you earn in the account. This helps you build your savings faster.
• Tax-free withdrawals. Any withdrawals are tax-free (because you’ve already paid tax on the money you deposit to a TFSA; unlike a RSP, contributions are not tax-deductible).
• Accessibility. You can withdraw your money at any time (though there may be some restrictions based on the type of investment chosen).  Just remember that you can’t re-deposit withdrawn amounts until the following year, or you may end up with an over-contribution.
• Accumulated contribution room. Any withdrawals you make are added to your contribution room in the following year. Unused contribution room in the TFSA can be carried forward indefinitely.
• Investment options. You can hold many different types of investments in your TFSA, including savings accounts, GICs and mutual funds.
• Flexibility. You can make your annual contribution in one lump sum or set up a recurring deposit/transfer, such as $25 per week through a Pre-authorized Transfer Service.
• Income-splitting. Although you can’t contribute directly to your spouse’s or common-law partner’s TFSA, you can give or lend them money, which they can then contribute to their own TFSA. This allows you to effectively split income.

The TFSA and retirement planning

A TFSA can be the perfect complement to an RSP or Retirement Income Fund (RIF):

• Use it for additional savings if you’ve contributed the maximum to your RSP or if you’ve passed the end of the year in which you turned 71.
• If you receive more RIF or pension income than you need when you retire, you can contribute the excess to the TFSA and benefit from the tax-free income and subsequent withdrawals.
• A TFSA provides a source of tax-free income without affecting government benefits such as Old Age Security. You can access funds in a TFSA tax-free without being bumped into a higher tax bracket or worrying about the impact on federal income-tested benefits.

Get started early

Learn more about the TFSA and how you can get started saving.

¹To open a TFSA at TD Canada Trust, you need to be of the age of majority in your province.