A Tax-Free Savings Account (TFSA) is a registered account in Canada that allows you to save and invest money without paying tax on the growth or withdrawals. Contributions are made with after-tax dollars, but all investment income—interest, dividends, and capital gains—is tax-free.
How It Works
Each year, the Canadian government sets a contribution limit. Unused contribution room carries forward, and withdrawals create additional room in the following year. Funds can be invested in stocks, ETFs, bonds, mutual funds, and other eligible assets.
Benefits
- Tax-free growth: All investment income and withdrawals are tax-free.
- Flexible withdrawals: Money can be withdrawn at any time without penalty.
- Contribution room: Withdrawals are added back to your limit the following year.
Final Thoughts
The TFSA is one of the most flexible and tax-efficient accounts available to Canadians. It is ideal for both short-term savings and long-term investing.