A TFSA lets you save money and invest it without paying tax on the growth or withdrawals

A Tax-Free Savings Account (TFSA) is a registered account offered by Canadian banks and investment firms. Money you put in grows tax-free, and you can withdraw it anytime without tax consequences. Unlike a Registered Retirement Savings Plan (RRSP), a TFSA has no age limit, no income requirement, and no penalty for taking money out early.

The account itself does not earn interest automatically. You choose what to do with the money inside it — keep it in a savings account, invest it in stocks or mutual funds, or hold it in cash. Whatever growth happens stays yours, tax-free. You can open a TFSA at most Canadian banks, credit unions, investment brokers, and online financial institutions.

You must be a Canadian resident, at least 18 years old, and have a valid Social Insurance Number to open one. Once you meet those conditions, you can open an account in your name alone or, at some institutions, as a joint account with a spouse.

Key Takeaways

  • A TFSA allows you to save and invest money that grows completely tax-free, with no tax on withdrawals at any time.
  • You get an annual contribution room that carries forward if you do not use it, and you regain the room you withdraw in the following calendar year.
  • The money inside a TFSA can sit in a savings account, be invested in stocks or mutual funds, or held in cash — you decide how it grows.
  • Withdrawals from a TFSA do not affect your income for tax purposes and do not reduce government benefits like the Canada Pension Plan or Old Age Security.

How much you can put in each year

The government sets an annual contribution limit that changes every few years based on inflation. For 2024, the limit is $7,000 per year. In 2023 it was $6,500. The limit has been $5,500 since 2015, with a brief increase to $10,000 from 2015 to 2016.

If you do not use your full limit in a given year, the unused room rolls forward to the next year. This means if you only put in $3,000 when you could have put in $7,000, you keep the extra $4,000 of room for later. You can catch up in any future year without penalty. The total room you have built up since 2009 (when TFSAs started) is shown on your CRA (Canada Revenue Agency) account online or in your tax notice of assessment.

When you withdraw money, you regain that contribution room on January 1 of the following year. If you take out $5,000 in June, you can put $5,000 back in starting January 1 of next year, on top of your regular annual limit. This is different from an RRSP, where withdrawals do not come back as room.

What happens to the money inside

A TFSA is a container. The growth that happens inside it is what stays tax-free. If you keep $10,000 in a TFSA savings account earning 4% interest, you pay no tax on that interest. If you buy stocks or mutual funds inside the TFSA and they go up in value, you owe no capital gains tax. Dividends earned inside a TFSA are also tax-free.

Outside a TFSA, that same $10,000 earning 4% interest would be taxed as income in your hands. The capital gains and dividends would also be taxable. The tax-free growth is the main reason people use TFSAs for savings and investing.

You can move money between investments inside your TFSA without triggering any tax. You can sell a stock and buy a mutual fund, or move cash from one account to another, all within the same TFSA. The account itself is the tax shelter — what you do inside it does not matter for tax purposes.

When and how to withdraw money

You can withdraw any amount at any time with no penalty or tax. There is no minimum age, no waiting period, and no reason required. Some people use TFSAs as emergency savings because the money is always accessible. Others use them as medium-term savings for a car, home renovation, or vacation.

Withdrawals do not count as income on your tax return. This means taking money out of a TFSA does not affect your may be able to access for income-tested benefits like the Canada Child Benefit, may provide Income Supplement, or provincial benefits. It also does not push you into a higher tax bracket or reduce any tax credits you receive.

To withdraw, contact your financial institution the same way you would withdraw from any account — online, by phone, or in person. Some institutions process withdrawals the same day; others take one to three business days. If you are moving money to another TFSA at a different bank, ask about a direct transfer, which is faster and cleaner than withdrawing and re-depositing.

TFSA versus RRSP: which one to use

Both are registered accounts that offer tax benefits, but they work differently. An RRSP gives you a tax deduction when you contribute — you reduce your taxable income for that year. A TFSA gives you no deduction; the tax benefit comes later when the money grows tax-free inside.

An RRSP is designed for retirement savings. You cannot withdraw money without tax consequences until you retire (though some exceptions exist, like the Home Buyers' Plan). A TFSA has no retirement requirement. You can withdraw anytime for any reason.

An RRSP is best if you expect to be in a lower tax bracket in retirement than you are now. A TFSA is best if you want flexibility, do not need a tax deduction now, or want to save for something other than retirement. Many people use both: an RRSP for retirement and a TFSA for shorter-term goals or emergency savings.

How to open a TFSA and track your room

To open a TFSA, visit a bank, credit union, investment firm, or online financial institution and ask to open one. You will need your Social Insurance Number, proof of identity, and proof of address. The process usually takes 15 to 30 minutes in person or a few days online. There is no cost to open an account.

Once your account is open, you can start contributing immediately up to your available room. Your available room is listed on your CRA My Account online portal, which you can access with your Social Insurance Number and password. It is also shown in your annual tax notice of assessment, which arrives after you file your taxes.

If you have never opened a TFSA before and are 18 or older, your available room includes all the annual limits from 2009 onward. For example, if you are opening your first TFSA in 2024 and have never contributed, your room is the sum of all limits from 2009 to 2024 — roughly $95,000 as of 2024, though this varies slightly depending on the exact years and limits.

What happens if you over-contribute

If you put in more than your available room, the CRA charges a penalty tax of 1% per month on the excess amount. This is separate from income tax. If you over-contribute by $1,000 for one month, you owe $10 in penalty tax. If it sits for a year, you owe $120.

If you over-contribute by mistake, withdraw the excess as soon as you realize it. The penalty applies only to the amount that was over the limit and only for the months it sat in the account. Once you withdraw it, the penalty stops accruing. You regain that contribution room on January 1 of the following year.

You can check your available room anytime through CRA My Account to avoid over-contributing. If you are unsure, contact the CRA directly or ask your financial institution — they can tell you how much room you have left.

Frequently Asked Questions

Can I have more than one TFSA?

Yes, you can open multiple TFSAs at different institutions. However, your contribution room is shared across all of them. If you have $7,000 of room and open two accounts, you can put $3,500 in each or $7,000 in one and nothing in the other. The CRA tracks your total contributions across all your TFSAs, so over-contributing to one account counts as over-contributing overall.

What happens to my TFSA if I move out of Canada?

You can keep your TFSA open and keep the tax-free growth, but you cannot make new contributions once you stop being a Canadian resident. If you return to Canada later, you regain your contribution room. The money inside continues to grow tax-free as long as the account exists.

Can I use a TFSA to invest in US stocks or cryptocurrency?

Yes, you can hold US stocks, bonds, mutual funds, and other investments inside a TFSA. The tax-free growth applies to any investment held in the account. Cryptocurrency is also allowed in most TFSAs, though some financial institutions do not offer it. Check with your provider about what investments they allow.

Does a TFSA affect my mortgage or loan applications?

No. Money in a TFSA is not counted as income, so it does not affect your income for mortgage or loan purposes. However, some lenders may ask about your total assets, which could include TFSA balances. Having savings in a TFSA generally looks positive to a lender.

What if I inherit money — can I put it in a TFSA?

Yes, inherited money can go into a TFSA like any other money. You use your available contribution room the same way. If you inherit $50,000 and have $7,000 of room, you can put $7,000 in the TFSA and the remaining $43,000 elsewhere. The inherited amount itself is not taxable in Canada, and putting it in a TFSA keeps any future growth tax-free.