What is a TFSA?

A Tax-Free Savings Account (TFSA) is one of Canada’s most flexible saving and investing accounts. Any growth inside the account — interest, dividends, and investment gains — is completely tax-free, even when you withdraw it.

Unlike an RRSP, a TFSA does not give you a tax deduction up front. Instead, it offers flexibility and long-term tax-free growth.

  • Withdraw anytime, for any reason
  • No tax when you take money out
  • No impact on income-tested benefits
  • No age limit to keep contributing

How TFSA contribution room works

You receive new TFSA contribution room every January 1st, starting the year you turn 18. This room accumulates even if you’ve never opened a TFSA.

You have three types of room:

  • Annual room — added each year
  • Unused room — contributions you haven’t made yet
  • Re-contribution room — withdrawals added back the following January

Over time, TFSA room becomes one of your most valuable long-term investment assets.

What can you invest in inside a TFSA?

  • High-interest savings accounts
  • GICs
  • Mutual funds
  • ETFs
  • Stocks and bonds

A TFSA isn’t “just a savings account” — it can be your family’s most powerful tax-free investing tool.

How withdrawals work

You can withdraw money at any time. The amount withdrawn is added back to your contribution room on January 1st of the following year.

Tip: If you plan to withdraw in December, waiting until January can restore your contribution room immediately.

How families use TFSAs strategically

  • Emergency savings — access + tax-free interest
  • Medium-term goals — flexibility without tax penalties
  • Long-term investing — tax-free compounding over decades

TFSA vs RRSP: which comes first?

For many families, income level makes the biggest difference:

  • Lower or moderate income → TFSA often comes first
  • Higher income → RRSP may provide stronger tax savings

We break this down in more detail here: RRSP vs TFSA — which should you use first?

If you’re deciding how TFSAs fit alongside retirement saving and debt repayment, our RRSP vs TFSA vs mortgage guide walks through a simple decision framework.

Quick reminder: This guide explains TFSA basics in general terms. It doesn’t account for your full tax situation, so it’s not personalized advice.

Want to see tax-free growth with your own numbers?

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