Tax-Free Savings Account (TFSA)

Tax-Free Savings Account (TFSA)

What is the TFSA?

Introduced in 2009, the Tax-Free Savings Account (TFSA) allows Canadians to save and invest their money on a tax-free basis.  This means that all your interest, dividends, distributions and capital gains earned in that account are yours to keep, completely tax-free.

How Much Can I Contribute to the TFSA?

The contribution limits for the TFSA are as follows:

From 2009-2012 they were $5,000

For 2013 and 2014 they were $5,500

For 2015 Mr. Stephen Harper raised it to $10,000!

For 2016 Mr. Justin Trudeau lowered it back to $5,500 🙁

So for anyone 18 years of age or older in 2009, the total contribution room for the TFSA is $46,500!

What Types of Investments Can I Own in a TFSA?

Many types of investments can be held in a TFSA.  Stocks, bonds, mutual funds, exchange-traded funds (ETFs) can all be held in one, or a person can use it as a plain vanilla savings account.

In my TFSA I currently hold Canadian dividend paying stocks.  For example, I own shares in the Bank of Nova Scotia (BNS), Toronto Dominion Bank (TD) and Manulife Financial (MFC) – all of which I intend to hold for a very long period of time and collect their dividend income on a tax-free basis.

If you want to build wealth then DO NOT use your TFSA as a glorified savings account.  At today’s low interest rates you won’t be saving much in the way of taxes on what little interest your TFSA will earn.  Why not take a long term view and invest the money for a greater return?

For those interested in using the TFSA to purchase dividend stocks, REITs and ETFs, then I would strongly consider opening a Questrade account.  They offer commission-free ETF purchases and you can buy stocks for $4.99 a trade.  That’s half price compared to most discount brokerages such as TD Waterhouse.

What are the Long Term Benefits of the TFSA?

The TFSA is a great long term savings and investment vehicle for those interested in growing their wealth, tax-free over their lifetime.  Unlike pension and RRSP income, any withdrawals from the TFSA in retirement are not only tax-free, but they won’t result in any clawbacks on Old Age Security (OAS) or the guaranteed income supplement (GIS).

For more information on the Tax-Free Savings Account (TFSA) see my posts below:

The Tax-Free Savings Account (TFSA): More Than Just Another Boring Old Savings Account!

How Anyone Can Become A TFSA Millionaire!

Also check out Gordon Pape’s Tax-Free Savings Accounts: How TFSAs Can Make You Rich on Amazon.