Discover out your present tax-free financial savings account (TFSA) contribution restrict through the use of this calculator.

Tax-free financial savings account is a little bit of a misnomer. Whereas you need to use it for easy financial savings, consider it extra precisely as an funding holding account to retailer issues like exchange-traded funds (ETFs), assured funding certificates (GICs), bonds, shares and, sure, plain outdated money. Whilst you do need to abide by the set quantity of contribution room annually, any progress you earn on these investments is not going to have an effect on your contribution room for the present yr or years to return. Plus, the revenue earned is tax-free (extra on that under). Any resident of Canada who is eighteen or older and has a sound social insurance coverage quantity can open a TFSA.

Is a TFSA actually tax-free?

TFSA contributions gained’t cut back your taxable revenue and generate a tax refund, in contrast to registered retirement financial savings plan (RRSP) contributions. (Should you haven’t maxed out your RRSP, get on that earlier than the deadline). Nevertheless, the place you do save on taxes with a TFSA is that the return you earn inside your TFSA isn’t taxable. Meaning revenue from issues like curiosity, dividends or capital features aren’t topic to revenue tax. Any revenue earned within the account—even when it’s withdrawn—is usually tax-free. We are saying “typically” as a result of international dividends, for instance, could also be topic to withholding tax, however the dividends don’t go in your tax return. (Unsure the place to take a position? Learn TFSA vs RRSP: The best way to resolve between the 2.)

How does TFSA contribution room work?

Your TFSA contribution room is the utmost quantity you possibly can contribute to your TFSA for any given yr. Your contribution room and your age have an effect on the quantity of contribution room you’ve got. You start accumulating contribution room from the yr you flip 18 (so long as you’re a resident of Canada), even should you didn’t file an revenue tax return that yr or have a TFSA but.

Your contribution room is the entire quantity of the next:

• The TFSA greenback restrict for the present yr
• Any contribution room you’ve got leftover from earlier years
• Any withdrawals created from your TFSA within the earlier yr

The TFSA contribution restrict for 2023 is $6,500. Should you turned 18 earlier than the yr 2009 and have by no means contributed, your most lifetime TFSA contribution restrict is $88,000. Should you take cash out of your TFSA, you get that room again on January 1 the next yr. Simply don’t go over your restrict or make the error of pondering you get your TFSA room again for withdrawals straight away.

What occurs should you overcontribute to your TFSA?

Should you exceed your contribution restrict, you’ll be topic to a 1% penalty tax per thirty days. Fortunately, this 1% tax solely applies to the quantity that’s been overcontributed, not the entire account worth. 

What are you able to maintain in a TFSA?

Certified investments for TFSAs embody: