As Canadians, we have access to personal savings vehicles such as the Tax Free Savings Account (TFSA), the Registered Education Savings Plan (RESP), and the Registered Disability Savings Plan (RDSP). These types of accounts can be utilized in addition to Registered Retirement Savings Plans (RRSPs) to grow your or your loved one’s savings.
A Tax Free Savings Account (TFSA) allows Canadians over the age of 18 to invest and save money in an account without being taxed on the investment income earned throughout their lifetime. That’s right, tax-free! Although you do not receive a deduction for a contribution to a TFSA like you do with an RRSP, money contributed to a TFSA is not subject to any tax on the earnings (e.g. interest, dividends, or capital gains) or on any withdrawals. There is however a contribution limit, and if you over-contribute you will be subject to a penalty of 1% per month until the over-contribution is withdrawn. Any contribution limit not utilized is carried forward to future years, and any withdrawals taken from a TFSA during the calendar year can be “re-contributed” in the next calendar year.