Tax-Free Savings Account (TFSA)

TFSAs were introduced in Canada in 2009. Contributions are made from income that has already been taxed and are not deductible, but everything earned inside the account, including interest, dividends and capital gains, is free of tax.

Each Canadian resident aged 18 or over accumulates contribution room every year, set by the government, and unused room carries forward. Amounts withdrawn are added back to contribution room from the following calendar year, which gives TFSAs considerable flexibility.

For example, someone who invests in a TFSA for many years can withdraw the money, including all the growth, tax-free to buy a car, fund a business or supplement retirement income.

TFSAs can hold cash, guaranteed investment certificates, funds, shares and bonds. Despite the name, they are not just for cash savings. Over-contributing results in a penalty tax. TFSAs are similar to ISAs in the United Kingdom and Roth IRAs in the United States, and are often used alongside Registered Retirement Savings Plans.