A “nifty” opportunity to save money. Tax Free Savings accounts (TFSAs) are a way to save and invest money that you are free to withdraw, tax-free at any time. Unlike RRSPs you do not get a deduction for contributing money to the plan, but also unlike RRSPs you are not taxed on withdrawals.
This means that any income earned while invested in your TFSA is tax-free. There are limits to contributions each year, but the good news is, if you haven’t contributed yet, or if you have missed some years, your limit simply carries forward and you do not lose out. Contribution limits will be noted on your tax assessment each year.
Contribution limits were $5,000 per year from 2009 through 2012, $5,500 per year for 2013 to 2014, $10,000 per year in 2015 and $5,500 per year in 2016. If you have never contributed to a TFSA then your limit would be $46,500.
The way to make this work for you is to save what you can and make sound investments inside the TFSA. In the beginning you may want to simply invest in a GIC or other interest earning investment. As your funds accumulate down the road, you may wish to diversify and spread the investment among the “safe: GIC’s and other things such as bonds or stocks.
Like RRSPs there are penalties for over contributing. Pay attention to your limit and seek advice where necessary.