FAQs
Unfortunately, TFSA contributions can't be used to lower your taxable income. This means there is no way to decrease your income tax when contributing to a TFSA. For high income earners this makes an RRSP more appealing.
What are the main benefits of TFSA? ›
A TFSA allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned in a TFSA are tax-free for life. Your TFSA savings can be withdrawn from your account at any time, for any reason1, and all withdrawals are tax-free.
What are the 5 mistakes you must avoid in a TFSA? ›
Here are five mistakes to avoid when managing your TFSA.
- Overcontributing to your account. ...
- Naming spouse a beneficiary instead of successor holder. ...
- Holding investments that produce foreign income. ...
- Not recognizing how market gains and losses impact your future contribution room. ...
- Choosing non-qualified investments.
What are TFSAs for dummies? ›
What is a TFSA? A tax-free savings account (TFSA) should really be called a tax-free investment account. That's because it is a registered account that allows you to hold not only savings, but also stocks, mutual funds, guaranteed investment certificates (GICs), bonds and exchange-traded funds (ETFs).
What is the downfall of a TFSA? ›
Holding a volatile investment in a TFSA can be risky for a couple of reasons: First, if a capital loss is realized, that loss cannot be used to reduce other taxable capital gains you may have. Second, only the amount withdrawn can be added back to TFSA contribution limit the following year.
What's the catch with a tax-free savings account? ›
TFSAs have annual contribution limits. Before you start investing in a TFSA, make sure you know what your contribution limit is. For 2024, the TFSA contribution limit is $7,000. If you were eligible to contribute in previous years but didn't do so, that unused room gets added to the current year's room.
Is TFSA good for seniors? ›
There are lots of good reasons to use a TFSA in retirement. You can keep contributing to a TFSA for as long as you live, unlike an RRSP which you must convert to a RRIF at age 71. If you have more retirement income than you need, you can place it in your TFSA, providing you have contribution room.
Why is a TFSA better than a savings account? ›
The key advantage of a TFSA is that any earnings from these investments—whether dividends, interest, or capital gains—are tax-free. You can also typically withdraw contributions, earnings and gains from the account without incurring taxes.
Can you take money out of TFSA? ›
You can withdraw funds from your TFSA any time you want1 and you don't have to reach a certain age before you withdraw your money. Withdrawals made from your TFSA will be added back to your TSFA contribution room the following year. Your financial institution can help you make withdrawals from your TFSA.
How are people using their TFSA wrong? ›
The most common TFSA mistake
If cash makes up the majority of the money you have in your TFSA, you aren't doing it right. But don't worry! You're not alone in making this mistake. Despite its name, a TFSA is not meant to function as a traditional savings account.
Yes, you can lose money on a TFSA, but it is easy to avoid losing your money. Typically, people who lose their money on a Tax-Free Savings Account are people who are using it for more volatile investments or people who are over-contributing.
What is the danger zone for TFSA? ›
One financial planner calls the first four months of the year a “danger zone” for making deposits to tax-free savings accounts. During this period, Canada Revenue Agency info that shows TFSA contribution room for the current calendar year can be based on incomplete information.
What are the cons of a TFSA? ›
No tax deductions: The biggest drawback of a TFSA, is that your contributions are made with after-tax dollars and are not tax deductible, unlike the FHSA and RRSP. Contribution limits: Though there is no lifetime maximum contribution limit, there is an annual contribution limit, stipulated by the Government of Canada.
What is the main benefit of TFSA? ›
No tax on earnings: Any income, capital gains and dividends you earn in a TFSA are yours – you won't be taxed on what you earn. No penalties for withdrawals: You can take your money out whenever you need it (subject to the type of investment you've made), which is good if you need access to your money quickly.
Can US citizens have TFSAs? ›
Many tax experts would advise U.S. citizens to avoid investing in a TFSA because it is not considered a tax-sheltered account by the IRS. If you invest using a TFSA as a U.S. citizen, you won't get to enjoy the tax-free benefits because all your investment gains will remain taxable when you file taxes in the U.S.
Is it normal to lose money in a TFSA? ›
Yes. The assets in your TFSA are like any other investment, and they can lose value over time. You can actually lose contribution room too.
What is the down side of a TFSA? ›
No tax deductions: The biggest drawback of a TFSA, is that your contributions are made with after-tax dollars and are not tax deductible, unlike the FHSA and RRSP. Contribution limits: Though there is no lifetime maximum contribution limit, there is an annual contribution limit, stipulated by the Government of Canada.
What are the limitations on TFSA? ›
How much can I contribute to my TFSA? The TFSA annual contribution room for 2024 is $7,000. You can also carry forward any unused contribution room from previous years.