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How TFSAs Work: Why Do You Need One?

Nov. 5, 2019, 5:09 a.m.   qualiacredit  

The TFSA is also known as the Tax-Free Savings Account. This is an investment and savings tool you can use in Canada to save for anything you like. Anyone over 18 can start one of these accounts, and you can withdraw money from the account at any time. Remember that this account is not the same as an RRSP. If you are thinking about saving for retirement, you should look at what an RRSP can do for you. The people who want to save for a vacation, a car, a home, or college tuition should continue eating to learn about the TFSA.

How Do You Start A TFSA?

The TFSA is configured so that it does not charge tax on contributions or withdrawals. You must go to a registered bank or broker who can start these accounts for you. If you are not signed up for a TFSA, you will be subject to taxes at the end of the year based on how much money you contributed and how much money was withdrawn.

What Are The Limits On This Account?

The TFSA has a current limit of $6000 a year in 2019. The limit has changed over time, and it is wise to check on legislation that could change the limit every year. Any money that is saved carries over to the next year, and any amount under $6000 that was not deposited carries over to the next year.

You can add more money to the account every year without paying taxes when you withdraw that money. Because this is not a retirement account, you are not bound to a particular withdrawal date. You simply need to add money to the account every year. Ask your broker if they can set up an automatic withdrawal to your savings account, or contact your financial planner every time you are ready to add to the account.

No Taxes On Withdrawals

You are not forced to pay taxes on any withdrawals from the account. You can withdraw money at any time, and you will never need to worry about taxes. You must remember that the taxes on other accounts could be higher because they are not sheltered from taxes. Your savings account you remain static for a long time, and you will never need to worry about the account or tax liability.

What Are You Saving For?

Saving for the future is easy when you can leave money in these accounts for long periods of time. You can save for your children to go to college, and you can withdraw the money when it is time to start writing tuition checks. If you are saving for a big vacation, you can withdraw money for deposits, airfare, and accommodations. You can use the money to buy a car, or you could use the money to make a down payment on a house.

Talk to your broker or financial planner about what you are saving for, and let the planner know when you think you will make these purchases. You can make instant withdrawals, and you might get a debit card that allows you to access the money quickly.

Avoid Loan Debt

When you are investing in a TFSA, you can avoid loan debt. These accounts are very helpful if you want to pay for college, and you can use the account to pay off student loans when you graduate. Putting money into the account now makes it easier for you to grow the account. You will get higher returns from the account when you are using a TFSA, and you will not need to pay tax on that money.

Write one check from this account to pay off a student loan, or keep the account open when you go to graduate school. You can continue to contribute to the account while you are in school so that you will have the right amount of money to pay off the loan.


TFSAs do not charge taxes, and they allow you instant access to your cash. Because of this, these accounts are good for paying off emergency expenses. You can pay to repair a car, pay for repairs in your house, or pay for a medical emergency. Plus, you can use some of the money from this account to pay for repairs before the insurance company pays your claim. You can put the money back into the account once your claim is paid.


There are several ways to use a TFSA, and you can keep these accounts for your entire life if you want. You can use these accounts to pay for anything you want, and you can use these accounts to pay for emergencies. You can avoid student loan debt, pay for a big vacation, make a down payment on a house, or buy a new car.

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