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What's a Tax-Free Savings Account (TFSA)?
A TFSA is a registered savings vehicle that helps you grow your money faster because you don’t pay taxes on the interest or investment income you earn. The plan can include a mix of investments including stocks, ETFs, mutual funds, GICs and more.
Who’s eligible for a TFSA?
To open a TFSA, you must live in Canada, be 18 years or older and have a valid Social Insurance Number (SIN). Contribution room accumulates beginning in the year in which you turn 18. Depending on the type of investment you choose, you may need to wait until you turn 19 to start contributing if the age of majority is 19 in the province or territory where you live.1
What’s a Self-Directed TFSA?
A Self-Directed Tax-Free Savings Account (TFSA) is a type of TFSA that gives you complete control over how your funds are invested within the account. Unlike a traditional TFSA, where your investments might be limited to standard savings options like cash or GICs, a self-directed TFSA allows you to choose from a broad range of investment options, including:
• Stocks: Invest in individual company shares for potential capital growth.
• Exchange-Traded Funds (ETFs): Diversify your portfolio with ETFs that track specific indexes, sectors, or asset classes.
• Bonds: Include government or corporate bonds to add a fixed-income component to your portfolio.
• Mutual Funds: Invest in professionally managed funds that pool money from multiple investors.
• GICs (Guaranteed Investment Certificates): Low-risk, fixed-term investments with guaranteed returns.
• Other securities: Access to options, REITs (Real Estate Investment Trusts), and other eligible investments.
Benefits of a Self-Directed TFSA
• Greater autonomy: You can manage your investments based on your financial goals, risk tolerance, and investment strategy.
• Tax-free Growth: Any income, dividends, or capital gains generated within the account are not subject to taxes, allowing your investments to grow more efficiently.
• Flexibility: You can adjust your investments at any time, making it easy to adapt your portfolio to changing market conditions or personal financial needs.
Who is a Self-Directed TFSA best for?
Self-Directed TFSA offers flexibility for investors of all experience levels. Whether you’re a beginner looking to start with simple investments or an experienced investor seeking to diversify your portfolio, a Self-Directed TFSA allows you to manage your investments at your own pace. You can begin with straightforward investments that you’re comfortable with, and as you gain confidence and knowledge, you can gradually expand and diversify. This flexibility empowers you to pursue your financial goals in a way that suits your comfort level and evolving expertise.
How does a TFSA work?
Your maximum contribution room for a year
=
TFSA dollar limit
+
Total of unused contribution room from previous years
+
Withdrawals made in the previous year2
Contribution room is per person, not per account. You can have multiple TFSA accounts at multiple financial institutions, but it doesn’t increase your contribution room.
It’s your responsibility to keep track of your TFSA contribution room so you don’t overcontribute.3 One way to check your contribution room is to sign on or register for an online account with the Canada Revenue Agency (CRA) Opens in a new window..
The CRA tracks all of your TFSA contributions and updates your contribution room at the beginning of every calendar year.
- The TFSA dollar limit gets set every year. For example, in 2024, it’s $7,000. Remember that this limit is not the same as your maximum contribution room.
- If you can’t contribute up to the limit in any given year, no problem: you can carry it forward. This means if you’ve never had a TFSA, were at least 18 in 2009 and have been a Canadian resident since then, you can contribute up to $88,000 in 2023 because of the unused contribution room you’ve carried forward.
- You can withdraw your money for any reason, at any time, tax-free. Plus, you can add the withdrawal amount back into your TFSA the next calendar year or in later years.4
TFSA Dollar limits since 2009 |
||
|---|---|---|
| Year | Amount | Total |
| 2009 | $5,000 | $5,000 |
| 2010 | $5,000 | $10,000 |
| 2011 | $5,000 | $15,000 |
| 2012 | $5,000 | $20,000 |
| 2013 | $5,500 | $25,500 |
| 2014 | $5,500 | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016 | $5,500 | $46,500 |
| 2017 | $5,500 | $52,000 |
| 2018 | $5,500 | $57,500 |
| 2019 | $6,000 | $63,500 |
| 2020 | $6,000 | $69,500 |
| 2021 | $6,000 | $75,500 |
| 2022 | $6,000 | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
Both TFSAs and RRSPs are integral pieces of a good financial plan. Find out more about these two important savings and investment options and how they can help you meet your goals.
Learn more about TFSAs and RRSPs.
The flexibility of TFSAs
One of the biggest advantages of a TFSA is its unparalleled flexibility. You can withdraw funds at any time, for any reason, without incurring taxes on the withdrawn amount. Plus, any withdrawn amounts can be added back to your TFSA in the following year or any subsequent year, ensuring your contribution room is never permanently reduced.
A Self-Directed TFSA not only offers a tax-efficient way to save and invest but also empowers you to take charge of your financial future with the freedom to adapt your strategy as your goals evolve. Whether you’re saving for a major purchase, building a nest egg for retirement, or simply investing for long-term growth, a Self-Directed TFSA can be a powerful tool in your financial toolkit.
Sources:
1 The age of majority is 19 in British Columbia, Nova Scotia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon. It’s 18 in the other 6 provinces.
2 Withdrawals made in the previous year does not include withdrawals made to correct over-contributions.
3 If you overcontribute to your TFSA, the extra amount will be taxed at 1% for every month it’s in your TFSA.
4 This does not apply to withdrawals to correct over-contributions.