Tax Free Savings Account (TFSA)

The TFSA is not actually a savings account, it is an investment vehicle like the RRSP. Your money inside the TFSA can be used to purchase a variety of investments including, mutual funds, segregated funds, stocks, bonds, guaranteed investment certificates (GIC) and others. These investments within your TFSA all are tax-sheltered, meaning you do not pay any interest on the dividends, or capital gains. 

The TFSA was introduced in 2009 as a means to save for retirement. You are eligible to start a TFSA the year you turn 18. The contribution amounts are set by the government and right now sits at $5,500 a year. Unused contribution room is carried forward back to 2009 or the year you turn 18, whichever is sooner. The maximum contribution room for 2018 is $57,500.

The money invested into your TFSA is after-tax income, meaning you do not pay taxes on any of the growth or at the time of withdrawal. The added benefit is any withdrawal is added to your contribution room the following year. For example, if you withdrawal $5,000 this year, next year you can contribute the annual contribution amount of $5,500 plus $5,000. 

An added bonus for retirees is any withdrawals from TFSA is not considered income. So this will not affect your retirement benefits life Old Age Security. 

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