Created by the federal government in 2009, Tax-Free Savings Accounts (TFSAs) can contain investments such as cash, GICs, mutual funds, segregated funds, stocks and bonds. You don’t get a tax deduction on your contributions like you would with an RRSP, but whatever you earn in a TFSA is tax-free.
- No tax on earnings: Any income, capital gains and dividends you earn in a TFSA are yours – you won’t be taxed on what you earn.
- No penalties for withdrawals: You can take your money out whenever you need it (subject to the type of investment you’ve made), which is good if you need access to your money quickly. Plus, any withdrawals will be added back to your contribution room in the following year.
- You can carry it over year-to-year: Any unused contribution room can be used in future years.
- No upper age limit on contributions: You can keep contributing well into your 70s and 80s, unlike your RRSP.
- It won’t impact federal income-tested benefits: Anything you earn or withdraw from your TFSA isn’t taxable and won’t impact Old Age Security, the Guaranteed Income Supplement or the Canada Child Tax Benefit.