The tax-free savings account (TFSA) is the only place you can invest for tax-free growth. Yes! Anything you earn inside is tax free, whether it’s capital gains, dividends, or interests.
Who can contribute to a TFSA?
If you are 18-years-old or older and have a social insurance number, you can open TFSAs. With the above criteria, even non-residents can save in a TFSA; however, there’s a 1% tax for each month the contribution stays in the account. So, it’s best to invest in TFSAs if you’re a Canadian citizen.
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How much can you contribute to a TFSA?
You can open as many TFSAs as you want. However, there’s a contribution limit. If you were at least 18-years-old in 2009 and have never contributed to a TFSA, you have $46,500 of contribution room across any number of TFSA accounts you open.
The contribution room for each year accumulates if it’s not used. Here are the contribution rooms from 2009 to 2016 since the start of the program.
| Year | Contribution Room |
| 2009 | $5,000 |
| 2010 | $5,000 |
| 2011 | $5,000 |
| 2012 | $5,000 |
| 2013 | $5,500 |
| 2014 | $5,500 |
| 2015 | $10,000 |
| 2016 | $5,500 |
| Total | $46,500 |
TFSA Withdrawals add a bit of complexity
If you withdraw from a TFSA, you can contribute that amount back in the next calendar year. If you contributed a total of $46,500 and you withdrew your first time this year (say, you withdraw $2,000), you can only contribute the $2,000 back in 2017.
However, if you contributed $46,000 in your TFSAs in total, and you withdrew $2,000 for whatever reason, you still have $500 contribution room left for this year. And the $2,000 that you withdrew can be added to your contribution room at the start of 2017.
Conclusion
Here are things you should keep track of so you’ll always know how much you can put in a TFSA:
- The contribution room for each year (The Canadian Revenue Agency helps you track this.)
- The amount you withdraw. (As soon as you withdraw an amount, add it back in for the contribution room you have available for the next calendar year.)
- The contribution room you have left this year.
- The contribution room you have left next year.
You can make your life easier by limiting the number of withdrawals you make (if any). However, it depends if you’re using your TFSA for short-term goals (such as for a vacation or big purchase), as an emergency fund, or for retirement. And of course, it can be used for all of the above.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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