A tax-free savings account lets you save up to $5,500/year for any purpose without paying taxes on the investment growth. Whether you’ll need those savings in a few years or well into the future, a TFSA is a smart way to save your money and see your savings grow tax-free. Unlike an RRSP, any withdrawals from a TFSA will limit your ability to further contribute to your TFSA for the balance of that calendar year, but most importantly, withdrawals from your TFSA creates the ability to repay those funds back into your TFSA the following year without impacting your future contribution limits.
You should consider a TFSA if:
- You want to save money for an emergency fund (or any other purpose) and see your savings grow without paying taxes on the investment income
- You’re looking for a tax-efficient way to increase your retirement savings beyond what’s in your RRSP
- You have money in a regular savings account and don’t want to continue paying taxes on the interest
- You have already contributed as much as you’re allowed to your RRSP