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Tax-Free Savings Account

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What is a Tax-Free Savings Account?

A Tax-Free Savings Account (TFSA) is an account that does not apply taxes on any contributions, interest earned, capital gains or dividends. In other words, all that you gain in this investment are completely tax-free for life! What’s more? The amount can be withdrawn tax-free as well.

This savings account is available to individuals aged 18 years and above in Canada and can be used for any purpose.

And if you want, you can put the money back into the TFSA. However, it is best you deposit it back the following year so as to not affect your contribution room.

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What are the criteria to open a TFSA?

You cannot open a TFSA until you turn 18 years old. In some provinces, the legal age to open the account can be 19.

How much money can I contribute to a TFSA?

The annual TFSA contribution limit for an individual of legal age is set at $6,000 for the year 2020. Any contribution amount not made to the TFSA during a year can be carried forward to the next year and added to its contribution limit. And any withdrawals made in the calendar year will create additional contributions room the following year.

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Please note that the TFSA cannot be prorated in the year an individual:

  • Turns 18 years old

  • Dies

  • Becomes a resident or non-resident of Canada

What if I over contribute?

The TFSA contributions room is made up of:

  • The TFSA dollar limit plus inflation indexation

  • Any unused TFSA contribution room from the previous year

  • Any withdrawals made from the TFSA in the previous year

  • Any contribution made over the TFSA’s maximum allowable amount is considered an over-contribution. For this, you will charged a penalty of 1% per month over the excess contribution until it is withdrawn.

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    It is true that the TFSA can be complicated to those new to the world of financial investments. That is why LIC Insurance is here to help you. Speak with our experts, they will be able to advise and guide you through your investments and help you make the most of them.