Canadians can earn tax-free investment returns using the plan referred to as the Tax-Free Savings Account (TFSA). Often I am asked, “should I contribute to an RRSP or a TFSA”. The two plans are very different. You get a tax deduction for contributions to an RRSP but will be taxed at a later date when you withdraw the funds. The TFSA investment is made using “after tax” dollars and while there is no tax credit for contributions, there is also no tax on withdrawals.  The best strategy for a TFSA comes down to estimating what your future income will be when you plan to withdraw. Read my article where I compare the two plans in more depth. The TFSA can complement a retirement income strategy with other registered savings plans like the Registered Retirement Savings Plans (RRSP) and is an important building block in your financial plan.

How Much Can You Contribute in 2024?

The TFSA began in 2009 and each year the federal government increases the “annual contribution limit” which increases the “lifetime annual contribution limit” too. For 2024, there is $7,000 in new annual contribution room and the Total Contribution Limit increases to $95,000. See the chart and graph below.

What Types of Investments are Allowed? 

In general, the types of investments that will be permitted in a TFSA are similar to those in an RRSP and therefore would include the following.

• cash;
• mutual and/or Segregated funds;
• securities listed on a designated stock exchange;
• guaranteed investment certificates (GICs);
• bonds; and
• certain shares of small business corporations.

Things to Watch Out For

• Withholding taxes on foreign dividends in a TFSA

Withholding taxes will be deducted from foreign dividends received in a TFSA, and these taxes are not recoverable.

• Don’t Over-Contribute

The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month.

Where can you find out your TFSA contribution room information?

Your TFSA contribution room information can be found by going to logging into the My Account government website or learn more at the Government of Canada website.

Not sure where to start with your financial plan or if a TFSA will be beneficial? Enter your name and email in the box on the right to complete the Goal Planning Checklist. Instantly identify the strengths and weaknesses in your current financial plan.