First of all you will get into the habit of setting money aside if you are not already doing it – you decide how much. You can contribute regularly or whenever you can, and you can withdraw from your account at any time, for any reason.
What is a TFSA?
A tax-free savings account (TFSAs) is a type of tax-advantaged account available to Canadian residents aged 18 and older. It is a powerful registered investment account that allows you (There are no limits on how much you can withdraw from your TFSA) at any one time. Withdrawals do not count as income, which means they have no impact on benefits like the GST Credit, Employment Insurance and Old Age Security. to set money aside in eligible investments and watch your savings grow tax-free throughout your lifetime.
This program started in 2009 and each year there is a contribution limit – see the table below. For 2021 the contribution limit is $6,000, and the cumulative total since 2009 is $75,500.
So what is all the hype about? Are contributions tax free?
In short the answer is no. Despite the account name, contributions to your TFSA are not tax free. They are taxable BUT there is a silver lining, all the interest, dividends, and capital gains earned in a TFSA are tax-free for life. Which means, the money you make on it is 100% yours to keep.
There is no limit on how much you can withdraw from your TFSA at any one time. Withdrawals do not count as income, which means they have no impact on benefits like the GST Credit, Employment Insurance and Old Age Security. Withdrawals made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.
Are you still thinking about it? I take my coffee with two shots of almond milk when you’re ready to chat money, taxes and savings 😉!