What is a Tax-Free Savings Account (TFSA)?

A TFSA is a government program designed to help you save throughout your lifetime. Flexible features make this registered account a great way to save for your future.

What are the advantages of a TFSA?

With a TFSA:

  • You pay no tax on interest income, dividends or capital gains earned within your TFSA.
  • Withdrawals from a TFSA are completely tax free.
  • Your contribution room is restored the year after you make a withdrawal.
  • Income-tested credits and benefits, such as the GST credit, Employment Insurance and Old Age Security, are not affected by withdrawals from your TFSA.
  • Canadians age 18 or older in 2009, who have not yet contributed, have $57,500 of contribution room in 2018.

How much can you contribute to a TFSA?

Canadian residents aged 18 or older can contribute up to $5,500 annually. Any unused contribution room can be carried forward, but there are penalties for over-contributing.

TFSA vs. RRSP - What are the benefits?

In general, an RRSP offers an up-front tax deduction when you make a contribution, but withdrawals must be claimed as income. A TFSA doesn’t offer an up-front tax break when you make a contribution, but does provide a tax benefit at the end because no tax is paid on withdrawals.

Earnings within both TFSAs and RRSPs are tax sheltered, which means you'll reach your savings goals faster. Both plans also allow you to carry forward any unused contribution room, but both have penalties for over-contributing.

Is a TFSA better than a non-registered savings account?

With the advantage of tax-sheltered growth, the same investment would accumulate faster within a TFSA than in a non-registered account. However, there are contribution limits within TFSAs and RRSPs, so a non-registered account is still useful for topping up your savings.

Who benefits from a TFSA?

  • Young adults: If you're just starting out, a TFSA is an excellent way to save for a car, a wedding or your first house.
  • Middle-aged adults: You can take advantage of tax-free savings to establish an emergency fund or save for a family vacation, home renovation, or to supplement a child's education savings.
  • Seniors: You can use a TFSA to fund additional income during retirement, or as a savings vehicle to replace RRSP contributions, which are not allowed past age 71.
  • Low-income earners: If you with withdraw from a TFSA, your eligibility for income-tested benefits will be unaffected. Also, all eligible TFSA individuals receive the standard indexed increase to contribution room, regardless of income level.
  • High-income earners: The TFSA is an excellent savings vehicle for those who have maximized their RRSP contributions but still want to save more for retirement.

Is a TFSA right for me?

Absolutely. Whether you're saving for one big goal or a few smaller ones, a Co-operators TFSA is a safe, smart and simple way to do it. Contact your Financial Advisor to see how a TFSA fits into your overall financial plan.

Try our investment calculator and discover how much you need to contribute in TFSA to achieve your savings goal.