- Your TFSA doesn’t need to be previously setup to earn annual contribution amounts.
You’re eligible for TFSA contributions when you turn 18. You do not need to file a tax-return, or have earned income. They automatically start accumulating the year you turn 18 years old. This means, that anyone born in or before 1991, will have an unused contribution amount of $57,500 as of 2018. If you were born after 1991 you will have to calculate the amount of contribution room you have, a list of amounts are listed on the CRA’s website here.
- A TFSA can be more than just a savings account.
Although named a “Tax-Free Savings Account” you can invest inside a TFSA in more than just a high-interest savings account. In fact, a TFSA can hold a broad range of investments such as, guaranteed investment certificates (GICs), bonds, stocks, ETF’s, and mutual funds. However it’s important to note that when investing in foreign equites that pay dividends, any dividend paid to your TFSA won’t be tax exempt like it is when paid to an RRSP or RRIF.
- Your investments grow inside the TFSA tax-free
Unlike an RRSP, a TFSA does not provide an income tax reduction meaning any income invested will be after-tax income. However like many registered accounts, any gains made in your TFSA are not subject to capital gains. This makes a TFSA an attractive account for growth-based investments over the long term. For example, if you invested $10,000 for 5 years and earned an annual rate of return of 5.5%, without any further contributions you would have earned $3,609 in additional savings that are completely tax-free.
- You can withdraw from your TFSA whenever you want, no matter the reason, tax-free.
One of the best features with a TFSA is you are able to withdraw any amount from your account whenever you want, for whatever reason. Also since the income put into the account has already been taxed when it was originally earned, any withdrawals are completely tax-free. If you decide to re-contribute the amount you withdrew, the only stipulation is you must wait until the next calendar year to put the money back and you can do so on top of your annual contribution amount maximums.
- Your contribution amount is periodically adjusted for inflation.
In order to keep up with changing income and price inflation, the Canadian government adjusted the TFSA contribution amount periodically for inflation. Historically the increments have been in $500 amounts, with exclusion of the previous Conservative government that allowed a one year maximum amount of $10,000 in 2015
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