What is a TFSA?
A Tax Free Savings Account is a flexible savings plan that can be used for any purpose over your lifetime! You can hold different investments under the TFSA contract, including:
Cash
Stocks
Bonds
Mutual Funds
Guaranteed investment certificate (GIC)/term deposits
TFSA’s are great because contributions are after-tax funds, meaning that the income/interest earned under the TFSA is tax-sheltered. You do not have to claim this income on your income taxes and the savings grow tax free.
Who Can Contribute?
The only qualifications you must meet in order to contribute to a TFSA are:
Be Canadian resident
At least 18 years old
Have a social insurance number (SIN)
TFSA Contributions
There are two different contribution limits that you must adhere to when you have a TFSA – this is your annual contribution limit (how much you can put into your TFSA each year) and your lifetime contribution limit (how much you’re allowed to put into your TFSA in total).
Annual Contribution Limit
Each year, every Canadian over 18 receives the same amount of TFSA contribution room:
| Year | Contribution Limit |
|---|---|
| 2009-2012 | $5,000 |
| 2013-2014 | $5,500 |
| 2015 | $10,000 |
| 2016-2018 | $5,500 |
| 2019-2022 | $6,000 |
| 2023 | $6,500 |
| 2024 | $7,000 |
Any unused contribution room will carry over into the next year.
Annual Contribution Limit
Accumulated annual contribution room for every year you were 18 or older:
2024 – $95,000
To check what your TFSA contribution room is, login to Canada Revenue Agency (CRA) website. But remember, if you exceed your limit, there is a 1% penalty tax on your highest excess amount each month.
TFSA Withdrawals
You can withdraw from your TFSA at any time, for any purpose. Additionally, any withdrawals you make from your TFSA are not taxed and you receive a dollar-for-dollar re-contribution credit effective January 1 of the following year.
Estate Planning with a TFSA
For estate planning purposes, if you name your spouse or common-law partner as a ‘successor holder’, this permits them to take over your plan without affecting their own TFSA contribution limits. You also have the option to name a ‘beneficiary’, meaning that they will be the one to receive the money from your plan in the event that you pass away. It is important to note that in this situation, this money is no longer part of a TFSA.
Now that you know a little bit more about Tax Free Savings Accounts, book an appointment with a Mainstreet Advisor to start yours today.