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Invest

What You Need to Know about Tax-Free Savings Accounts (TFSA)

November 2, 2022
min read

Saving can be a lot easier than you thought! TFSAs are an excellent tool to help you achieve your goals. Let us show you how to get the most use from a TFSA account.

What is a TFSA?

The Tax-Free Savings Account (TFSA) has been around since 2009. Any Canadian citizen with a social insurance number who is 18 and older can set aside money in a TFSA throughout their lifetime. Like many Canadians, you’re probably wondering what the Tax-Free Savings Account (TFSA) is about. This product, introduced by the Government of Canada, was designed to help Canadians increase their savings without taxing the investment growth or interest earned in that account.

The annual TFSA contribution limit can change each year, and is established by the Government of Canada. For 2023, the maximum contribution limit is $6,500 per year. There are no limit on how much you can withdraw from your TFSA at one time. The benefit is that the amount you withdraw, along with any investment growth or interest earned is not considered income so it is not taxed. However, when you make contributions to your TFSA, you do not get the benefit of a tax deduction, as you would with an RRSP (more on the difference between TFSAs and RRSPs below).

According to the Canada Revenue Agency, over 15 million Canadians hold a TFSA account. The number of Canadians taking advantage of TFSAs shows that it’s growing in popularity and that more Canadians see the value in using a TFSA to achieve their financial goals.

“Think of it as a Tax-Free Account, where you can hold savings, GICs and a multitude of other investments” explains David MacRae, Director of Wealth & Advisory Services at Cambrian Credit Union.  “When members work with our team, the TFSA becomes a critical account type that factors into their overall retirement strategy.”

The TFSA is an excellent account to accumulate and grow wealth. Members can use their TFSA towards a short-term goal, such as saving for a family vacation and long-term benefits when built into their overall retirement plan.

“When included as part of the retirement plan, the TFSA is an important account because it allows for better income layering when a member retires.  Implementing an income strategy that draws from all retirement accounts with consideration of Canada Pension Plan (CPP) and Old Age Security (OAS) payments will allow you to navigate tax brackets and to preserve income-tested government benefits,” says MacRae.

Making the most of your TFSA, especially as part of your retirement planning, is one reason why working with Cambrian’s advisors is beneficial. MacRae points out, “We strive to deliver on our investment philosophy which includes focusing on members understanding what they own and why they own it.”

So, what’s the difference between a TFSA and an RRSP?

Both are savings vehicles. An RRSP is tax deductible at the time of your contribution, whereas a TFSA is not. You can use a TFSA for other purposes besides retirement. You can access TFSA funds at any time, and this appeals to a lot of people.

Deciding whether a TFSA or RRSP (or a combination of both) is right for you will depend largely on your need to access your funds or whether you need the immediate tax deduction. For example, perhaps you expect to be in a higher tax bracket in the future and will need the tax-free benefits a TFSA presents. Or maybe you’ve topped out on your RRSPs and would like another savings vehicle that doesn’t get taxed when you withdraw money. Cambrian can help you decide what the right solution is.

TFSA Minimum age: 18
Age Limit Contributions: No limit
Contribution limit for 2023: $6,500
Limit as a % of income earned: No limit
Carrying forward unused contribution room: Annual
Replacement of withdrawal amounts: Yes
Tax-deductibility of contributions: No
Tax on Income: No
Tax on withdrawals: No
Impact on government benefits (OAS, GIS): No
RRSP Minimum age: No minimum age
Age Limit Contributions: Year of 71st birthday
Contribution limit: 2022: Up to $29,210
Limit as a % of income earned:
18%
Carrying forward unused contribution room: Annual
Replacement of withdrawal amounts: No
Tax-deductibility of contributions: Yes
Tax on Income: No
Tax on withdrawals: Yes
Impact on government benefits (OAS, GIS): Yes

Today’s Rates

*All rates and yields subject to change without notice.
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Want to Discuss with an Advisor?

We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.

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