What is a TFSA?
A Tax-Free Savings Account (TFSA) is one of Canada's most powerful savings tools. Despite the name, it's not just for savings — you can invest in stocks, bonds, ETFs, mutual funds, and GICs within your TFSA.
The key benefit: any growth, dividends, or capital gains are completely tax-free. When you withdraw money, it doesn't count as income, so it won't affect your tax bracket or government benefits.
Quick TFSA Facts
- • Available to Canadian residents 18+ with a valid SIN
- • Contribution room accumulates every year (even if you don't contribute)
- • Withdrawals can be re-contributed the following calendar year
- • No tax on withdrawals — ever
- • Doesn't affect Old Age Security or other benefits
Understanding contribution room
Your TFSA contribution room is the total amount you can contribute without penalty. It accumulates at $6,500 per year (as of 2024), plus any withdrawals from previous years.
For example, if you're 30 and have never contributed, you likely have around $88,000 in room. Check your exact amount on the CRA's My Account portal.
Contribution room calculation
Your total room equals:
What you can invest in
Your TFSA can hold almost any investment a regular account can. The key is choosing investments that match your timeline and goals.
Short-term (0-3 years)
For money you'll need soon, stick with guaranteed options like high-interest savings accounts or GICs.
Medium-term (3-7 years)
Consider balanced portfolios with a mix of stocks and bonds. Growth potential with reduced volatility.
Long-term (7+ years)
Growth-focused portfolios can compound tax-free for decades. Consider low-cost index funds or ETFs.
Smart withdrawal strategy
One of the TFSA's best features is flexibility. You can withdraw anytime without tax consequences, and you get that contribution room back the next year.
Withdrawal Strategy
If you withdraw $10,000 in December, you can re-contribute that $10,000 starting January 1st (plus your new annual room). This makes TFSAs perfect for irregular expenses or opportunities.
Common mistakes to avoid
Over-contributing
Contributing more than your available room triggers a 1% monthly penalty on the excess. Always check your room first.
Day trading or frequent trading
If the CRA considers your TFSA activity as "carrying on a business," they can tax your gains. Stick to long-term investing strategies.
Holding only cash
While safe, keeping everything in savings accounts wastes the tax-free growth potential. Consider your timeline and risk tolerance for better long-term results.
Getting started today
Here's a simple action plan:
Check your contribution room
Visit the CRA My Account website to see your available room
Open a TFSA
Choose a bank, credit union, or online brokerage that fits your needs
Set up automatic contributions
Even $100/month adds up — automation makes it effortless
Choose investments
Match your investment choice to when you'll need the money
Review annually
Adjust as your situation and goals change
Remember, the best TFSA strategy is the one you'll actually follow. Start simple, be consistent, and let compound growth work in your favor.