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All about TFSAs and when they’re worth it

What is a TFSA?

At its core, a TFSA is a savings account—a savings account where you never have to pay taxes. But it’s regulated by the federal government, not your financial institution.

Let’s begin by unpacking the “SA” in TFSA first and dive into how saving accounts work. When you put money into savings, it indirectly tells your financial institution that you’re not planning on using the funds right now. They can then lend that money to someone else—not the literal money in the account but the capital it provides. So, in exchange for that indirect understanding, the financial institution pays you interest and over time, your money begins to earn more money. That’s the “SA” in TFSA all sorted. Now, onto the “TF” or tax-free part.

In a regular savings account, when the financial institution pays you $50 interest in one year, you’ll receive a tax slip and have to declare that money as income on your taxes. With a TFSA, it’s different. Any interest you accumulate in a Tax-Free Savings Account is, you guessed it, tax-free. If you earn thousands of dollars in interest on your TFSA, you won’t have to claim any of it as income.

You can open a Tax-Free Savings Account at any full-service financial institution. It’s as simple as walking into a nearby branch and opening one up.

How much money can you put into a TFSA?

This answer depends on the year you were born.  If you were over the age of 18 in 2015 and you’ve never deposited a single penny into your TFSA, you can deposit up to $50,000 in 2022. If you were born after that, your contribution room begins the year you turned 18. Here is a chart to makes things more clear.

Years TFSA Annual Limit Cumulative Total
2015 $10,000 $10,000
2016 $5,500 $15,500
2017 $5,500 $21,000
2018 $5,500 $26,500
2019 $5,500 $32,000
2020 $6,000 $38,000
2021 $6,000 $44,000
2022 $6,000 $50,000
2023 $6,500 $56,500


Just remember, before you start depositing money into your TFSA, double-check your limit on the CRA website. Everyone is different. It’s important to check your contribution room because there is a 1% penalty every month if you over contribute.

What happens if you withdraw funds?

Unlike RRSPs, if you need to take money out of your TFSA you can simply transfer it just like any other savings account—no penalties or taxes to be paid. However, this has implications for your contribution room for that year.

The clearest way to explain this is through an example:

Let’s say, in 2022, you’ve already deposited the entire $50,000 cumulative total into your TFSA, but you want to withdraw $1000. You can withdraw (or transfer out) that money without paying any penalties. That $1000 contribution room you now have carries forward and you can eventually deposit the funds back. However, you can’t deposit that $1000 into your TFSA until 2023 or the following year.

When is a TFSA worth it?

TFSA is a good place for any savings goals other than retirement.  If you’re saving for a new car or down payment for a house, it’s a great tool to use.  For some people, it even works for retirement planning.  In particular, if you know your retirement income will be higher than your current income, a TFSA is probably better than an RRSP.  This is also true for people expecting a more modest retirement income.  TFSA is also worth it if you don’t have an exact plan for mid to long-term savings.

At the end of the day, chances are a TFSA can enhance your savings strategy but it’s best to book an appointment with an advisor who can give you personalized financial advice.

When isn’t a TFSA the best idea?

If you are saving for retirement and your current income is higher than you would expect in retirement, then an RRSP plan may be the better choice.

If you’re saving for something that’s very short-term (under 12-18 months), there is limited benefit to utilizing a TFSA.  It’s also not ideal for a savings plan you intend to make frequent withdrawals from.  And some plans may even have service charges for that.



The stuff we have to say.
Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products. Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual funds are not guaranteed or insured by any financial institution, government or other deposit insurer. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts.

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