TFSA Tax free savings account

TFSA Tax Free Savings AccountTFSA was started by the Canadian government in 2009. Government allows an individual to save money and let it grow tax free.

Contributions to the TFSA are not tax deductible and any income earned inside the TFSA is not taxed upon withdrawal when needed.

Who can open a TFSA

Anyone over age 18 with a valid social insurance number (SIN) can open a Tax Free Savings Account.

TFSA contribution limits

Since 2009 TFSA contribution accumulates every year. It is indexed to inflation and rounded to nearest $500.

  • The annual contribution limit from 2009 to 2012 was $5,000 every year.
  • For 2013 and 2014 it was $5,500 per year.
  • For 2015 it was $10,000
  • 2016 and 2017 it was $5500
  • 2018 it was $5500
  • And for 2019 it is $6000

Your total TFSA contribution room:

Your contribution room is made up of

  • any unused contribution room from previous years
  • contribution room for current year
  • Any withdrawals made from your TFSA in the previous year.

Examples – TFSA contribution room

These examples are directly from the Canadian government website.

Example 1

Brayden was eager to open his TFSA, but he didn’t turn 18 until December 21, 2016.
On January 4, 2017, he opened a TFSA and contributed $11,000 ($5,500 for 2016 plus $5,500 for 2017 – the maximum dollar limits for those years).
On the advice of his broker, he had opened a self-directed TFSA and invested in stocks that increased in value.
By the end of 2017, the value in Brayden’s account had increased to $11,800. Brayden was worried that for 2018, he would only be able to contribute $4,700 (the dollar limit of $5,500 for 2018 less the $800 increase in value in his account through 2017).
Neither the earnings generated in the account nor the increase in its value will reduce the contribution room in the following year, so Brayden can contribute up to another $5,500 in 2018 to his TFSA.
 

Example 2

From 2011 until the end of 2016, Josh contributed the maximum TFSA dollar limit each year. He did not make any other contributions or withdraw any funds. As a result of his $5,500 contribution in 2016, his unused TFSA contribution room at the end of 2016 was zero.

His TFSA contribution room at the beginning of 2017 was $5,500 (the 2017 TFSA dollar limit).

On June 15, 2017, Josh made a contribution of $500. On October 26, 2017, he withdrew $4,000.

His unused TFSA contribution room at the end of 2017 was $5,000 ($5,500 – $500).

Josh makes the following calculation to determine his TFSA contribution room at the beginning of 2018 as follows:

 

Step 1: Calculate Unused TFSA contribution room at the end of 2017

TFSA contribution room at the beginning of 2017 ($5,500) minus contributions made in 2017 ($500) = Unused TFSA contribution room at the end of 2016 ($5,000)

Step 2: Calculate TFSA contribution room at the beginning of 2018

Unused TFSA contribution room at the end of 2017 ($5,000) + total withdrawal made in 2017 ($4,000) + 2018 TFSA dollar limit ($5,500) = TFSA contribution room at the beginning of 2018 ($14,500)

Withdrawing money from TFSA

You can withdraw any amount any time as long as your funds are not locked in a GIC or some other type of investment that may charge a fee for early withdrawal. Withdrawing funds from your TFSA does not increase your contribution room for the same year.

Here is an example for withdrawals from the Canadian government site:

Example

From 2010 until the end of 2014 Cedric contributed the maximum TFSA dollar amount each year to his TFSA. In 2015, he is allowed to contribute $10,000. He contributes $6,500. for that year.

2015 TFSA dollar limit ($10,000) minus 2015 contributions ($6,500) = unused TFSA contribution room available for future years ($3,500)

In 2016, Cedric does not contribute to his TFSA, but he makes a $1,000 withdrawal from his account. This withdrawal will not affect his TFSA contribution room until 2017:

2015 unused TFSA contribution room ($3,500) + 2016 TFSA dollar limit ($5,500) = 2016 unused TFSA contribution room available for future years ($9,000)

Cedric’s TFSA contribution room for 2017:

2016 unused TFSA contribution room ($9,000) + 2016 withdrawals ($1,000) + 2017 TFSA dollar limit ($5,500) = TFSA contribution room at the beginning of 2017 ($15,500)

Cedric’s TFSA contribution room for 2018:

2017 unused TFSA contribution room ($15,500) + 2018 TFSA dollar limit ($5,500) = TFSA contribution room at the beginning of 2018 ($21,000)

Other links and Resources

RRSP page

Here is a link for more info on TFSA