What is a TFSA?

What can you hold in a TFSA?

A TFSA is not just a savings account despite the name. You can hold cash, GICs, stocks, ETFs, mutual funds, and bonds inside one. The tax-free treatment applies to all of them. If your portfolio grows by $40,000 inside a TFSA, that $40,000 is yours when you take it out.

This is the core difference from a regular investment account, where capital gains, dividends, and interest are all taxable in the year they occur or the year you sell. Inside a TFSA, none of that applies.

How much can you contribute?

The federal government sets a TFSA contribution limit each year. Unused room from previous years carries forward. If you have never opened a TFSA and became eligible in 2009 when the program launched, your cumulative room as of 2024 is $95,000. The limit increases each year, typically in line with inflation rounded to the nearest $500.

You can withdraw money from your TFSA at any time for any reason. The amount you withdraw is added back to your contribution room the following calendar year, so you never permanently lose it.

TFSA vs RRSP: the basic distinction

An RRSP gives you a tax deduction when you contribute and taxes you when you withdraw. A TFSA gives you no deduction on the way in but no tax on the way out. For most people in their early career, the TFSA wins because the tax-free growth compounds over decades. The RRSP becomes more valuable as income rises and the deduction is worth more.

For investors using Managed or Self-Directed investing, a TFSA is usually the default first account. The growth inside it belongs entirely to you.

Who is eligible?

Any Canadian resident who is 18 or older and has a valid Social Insurance Number can open a TFSA. You begin accumulating contribution room in the year you turn 18, or 2009 if that was later. Non-residents can hold a TFSA but are subject to a 1% monthly tax on contributions made while non-resident, so it is generally not advisable to contribute while living outside Canada.