Take advantage of the flexibility to access your savings for what you want, when you need it.
Despite its name, it’s not a typical savings account – it’s a place where you can put investments like mutual funds or segregated funds.
It’s versatile, so you can use it to save for a more immediate goal, like saving for a new car or a trip, but you can also use it to save for your retirement. Its partner, the RRSP, on the other hand, is just typically used for long-term investing.
- When you’re 18 and have a valid Social Insurance Number, you can open a TFSA with help from an advisor who can set you up with investments that meet your goals.
- You can contribute monthly but make sure to stay within the yearly limits, which is $7,000 for 2025. Your contributions aren’t deductible for income tax purposes.
- Your investments can grow tax-free.
- Withdraw your money tax-free when you’ve reached your goal or if something unexpected happens.
- After you take money out, your contribution room is restored in the following year, so you can put the money back (recontribute) then with no penalties.
- If you skip a year, or even 10, unused contribution room just rolls over to the next year.
It’s a perfect option if you:
It’s easy to open a TFSA. There are 3 main criteria:
- 18 or older
- Have a Canadian social insurance number
- Are a Canadian resident
The Canada Revenue Agency (CRA) allows a specific amount of contribution room each year. Contribution room is cumulative so any room from previous years continually carries over – meaning you can continue contributing as your total contribution room grows annually. For instance:
2025 annual contribution limit - $7,000
Total cumulative contribution room available in 2025 - $102,000 (for someone who has never contributed and turned 18 before 2009)
You can have multiple TFSAs – just know that the annual limit applies to the total amount you contribute, not to each TFSA individually.
Find your own limit
You can find out how much money you’re currently allowed to contribute to a TFSA by signing into the Canada Revenue Agency website.
You have plenty of investment options you can put in a TFSA:
After you withdraw money from your account, you can put the whole amount back whenever your want and still save the maximum every year.
If you go over your contribution limit within a given year, you’ll have to pay a penalty of 1% on the excess amount per month for as long as the extra amount remains in your TFSA.
While there’s no formal deadline as contributions are not deductible, contributions and withdrawals are tracked on a calendar year basis from Jan. 1 to Dec. 31. It’s important to be aware of when you’re making contributions and withdrawals because of the overcontribution penalty. Additionally, by contributing earlier in the year, your savings will have more time to grow tax-free.
You don’t have to report your TFSA on your tax return because your contributions aren’t deductible, and any investment growth is tax-free. Your withdrawals are also tax-free.
If you become a non-resident of Canada for income tax purposes, any contributions made at that time will be subject to a 1% tax for each month the contribution stays in the account.
Workplace TFSAs are similar to personal TFSAs, with some potential added benefits.
Depending on your plan, you may be able to take advantage of lower investment manager fees compared to retail funds and set up automatic contributions through your payroll, making saving simple and convenient.
Use your online account to check your balance, make additional contributions, manage your personal information and more.
At the end of the day a TFSA and an RRSP both help you do the same thing – allow you to save money for the future. But they do it in different ways, so depending on your circumstances, having both can help you achieve your goals.
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RRSP
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How do you start one? |
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How long can you contribute? |
Dec. 31 of the year you turn 71 |
For life |
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What’s the contribution deadline? |
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What’s the contribution limit? |
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$7,000 for 2025, plus any withdrawals in a previous year and any unused contribution room carried forward from the previous year |
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What happens if you withdraw money? |
Contribution room is permanently lost |
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What are the upfront tax advantages? |
Lower your taxable income for the current year |
None because contributions are made with after-tax income |
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What are the future tax advantages? |
Any income earned in your RRSP is usually free from tax as long as it stays in the plan. Every dollar you withdraw is taxed at your marginal tax rate, which is usually lower when you’re retired. |
You generally won’t pay tax on any income earned in the account or the money you withdraw. There aren’t any tax consequences if you need to use your savings for emergencies or short-term expenses. Withdrawals aren’t considered income, so this money isn’t included when the government calculates benefits like Old Age Security, Guaranteed Income Supplement, GST/HST credits and other credits/benefits like the Age Credit. |
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Bottom line |
Can provide greater short- and long-term tax benefits but is less flexible because you have to pay income taxes on withdrawals |
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The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.