What is a TFSA?
TFSA (Tax free savings account): A Tax-Free Savings Account (TFSA) is a financial account available to residents of Canada that allows individuals to save and invest money without paying taxes on the income or capital gains generated within the account. Unlike traditional savings or investment accounts, contributions to a TFSA are made with after-tax dollars, meaning there is no tax deduction for the contributions.
However, any interest, dividends, or capital gains earned within the TFSA are not subject to income tax when withdrawn.Key features of a TFSA include:
Tax-Free Growth: Investments held within the TFSA can grow tax-free, and withdrawals are also tax-free, making it a flexible and tax-efficient savings and investment tool.
Contribution Limits: There are annual contribution limits set by the Canadian government, and unused contribution room can be carried forward to future years.
Wide Range of Investments: TFSAs can hold various types of investments, including savings accounts, GICs (Guaranteed Investment Certificates), stocks, bonds, mutual funds, and more.
Flexible Withdrawals: Funds can be withdrawn from a TFSA at any time for any purpose without penalties or taxes. The withdrawn amount is added back to the contribution room in the following year.
No Age Limit: Unlike Registered Retirement Savings Plans (RRSPs), there is no maximum age for contributing to a TFSA.