You are just starting your career and your income, and tax rate, are still fairly low.
Why it fits: An RRSP deduction is worth less at a low tax rate, so a TFSA lets your savings grow tax-free while keeping your money flexible.
Tax-Free Savings Account (TFSA)
Grow your savings and take money out completely tax-free.
A TFSA is a flexible, government-registered account where your savings grow tax-free and withdrawals are never taxed. Use it for retirement, a home, an emergency fund or any goal in between.
Overview
A Tax-Free Savings Account, or TFSA, is one of the most flexible ways to save in Canada. You contribute money you have already paid tax on, and from then on, your growth and your withdrawals are tax-free.
Despite the name, a TFSA is not just a savings account. It is a container that can hold many types of investments, so your money can work as hard as you want it to.
How your room adds up
You start earning TFSA room in the year you turn 18, as long as you are a Canadian resident with a valid SIN. Each year, the CRA sets a new annual limit, and any room you do not use carries forward. Because the limit can change, the best place to see your exact room is CRA My Account.
Choosing what goes inside your TFSA
With us, you can fill your TFSA with insurance-based options that match your goals:
- Segregated funds: growth potential with guarantees on your principal at maturity or death, plus the option to name a beneficiary.
- GICs: guaranteed returns with no market risk, ideal for short-term goals or emergency savings.
- Successor holder: naming your spouse lets your TFSA pass to them tax-free and keep its tax-free status.
We help you decide how a TFSA fits alongside your RRSP and other savings.
How it works
- 1
Build up contribution room
Every Canadian resident aged 18 or older with a valid SIN gets new TFSA room each year, set by the CRA. Unused room carries forward, so it keeps adding up.
- 2
Contribute with after-tax dollars
Contributions are not tax-deductible, but that is what makes everything you take out later tax-free.
- 3
Grow tax-free
Hold segregated funds, GICs or other insurance-based investments in your TFSA. Interest, dividends and gains are never taxed.
- 4
Withdraw anytime, tax-free
Take money out whenever you need it. The amount you withdraw is added back to your contribution room on January 1 of the next year.
Key benefits
Tax-free growth
Every dollar your savings earn inside a TFSA is yours to keep, with no tax on interest, dividends or gains.
Tax-free withdrawals
You pay no tax when you take money out, whether it is next month or 30 years from now.
Flexible for any goal
Use your TFSA for retirement, a home, a car, travel or an emergency fund. There are no rules on what the money is for.
Room carries forward
If you do not use all your room, it carries forward to future years, so you can catch up later.
Withdrawals restore your room
Any amount you withdraw is added back to your room the following calendar year, so you can re-contribute.
No effect on government benefits
TFSA withdrawals do not count as income, so they do not reduce Old Age Security (OAS), the Guaranteed Income Supplement (GIS) or other income-tested benefits.
Who it’s for
You are retired, receive OAS and want to keep investing your required RRIF withdrawals.
Why it fits: Moving extra RRIF money into a TFSA keeps it growing tax-free, and future withdrawals will not affect your OAS or GIS.
You want a safety net you can reach quickly if something unexpected happens.
Why it fits: A TFSA holding GICs or a conservative segregated fund keeps your emergency money growing tax-free and available when you need it.
Pros & cons
Pros
- Growth and withdrawals are completely tax-free
- Withdraw anytime for any reason
- Withdrawn amounts are added back to your room the next year
- Does not affect OAS, GIS or other income-tested benefits
Things to consider
- Contributions are not tax-deductible
- Over-contributions are penalized at 1% per month
- Re-contributing in the same year you withdraw can cause an over-contribution
How it compares
| TFSA compared with an RRSP and a non-registered account | TFSA | RRSP | Non-registered |
|---|---|---|---|
| Tax deduction for contributions | No | Yes | No |
| Tax on growth | None | Deferred until withdrawal | Taxed each year or when sold |
| Tax on withdrawals | Tax-free | Fully taxable as income | Only on gains or income |
| Contribution limit | Annual limit set by the CRA | 18% of earned income up to the annual limit | No limit |
| Effect on OAS and GIS | None | Withdrawals count as income | Investment income counts |
| Best for | Flexible savings and lower earners | Higher earners saving for retirement | Savings after registered room is used |
Run the numbers
RRSP, TFSA & RESP growthProject your registered savings, tax refunds and government education grants.Frequently asked questions
How much TFSA room do I have?
Your room is the sum of each year's limit since you turned 18 (or since 2009, when TFSAs began), plus last year's withdrawals, minus your contributions. The easiest way to see your exact number is in CRA My Account.
What happens if I over-contribute?
The CRA charges a tax of 1% per month on the highest excess amount in each month, until it is withdrawn or new room becomes available. Always check your room before contributing.
Can I withdraw and put the money back in the same year?
Only if you have unused room left. Withdrawals are added back to your room on January 1 of the next year, so re-contributing too soon can lead to a penalty.
Should I choose a TFSA or an RRSP?
It depends on your income now and what you expect in retirement. A TFSA is often better at lower incomes or when you want flexibility, while an RRSP is often better at higher incomes. Many people use both, and we can help you find the right balance.
Related products
Registered Retirement Savings Plan (RRSP)
Save for retirement and lower your taxes today.
Segregated Funds
Invest for growth with guarantees that protect your principal and your loved ones.
Registered Education Savings Plan (RESP)
Give your child a head start, with free money from the government.
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