A strategic approach to your savings plan starts with using the right tools. Regardless of what you’re saving for, a tax-free savings account (TFSA) might be what you need. It’s a unique financial tool that lets you save for both short and long-term goals. Its biggest benefit? Your money will grow tax-free! This allows you to take full advantage of compounding growth - earning interest on your interest - over time.
Read on to explore key TFSA features, contribution limits, and other important factors you should consider when setting up your savings strategy.
What is a Tax-Free Savings Account?
As the name suggests, a tax-free savings account is a registered investment account that allows you to grow your funds without the need to pay tax on your earnings. Contributions are made with after-tax income, while any interest you gain is completely tax-free. The Canadian Government introduced this financial tool in 2009 to help Canadians save and invest their money.
Opening your TFSA is straightforward. To open a TFSA, you must:
be a Canadian resident,
be age 18 or older
have a valid Social Insurance Number (SIN).
With flexible tax-free withdrawals, you can access your funds without paying a penalty. However, some financial institutions may charge fees for account maintenance or fund transfers.
Another amazing perk of a TFSA is the absence of income requirements. To open an RRSP, you need to have earned income and filed a tax return. Anyone meeting the requirements mentioned above can open a TFSA account, regardless of their employment status.
You can set up your savings account to boost your retirement savings, save to make a major purchase or fund your education. A tax-free savings account is a versatile financial tool to address your financial goals across multiple scenarios.
TFSA Contribution Limits by Year
The prominent feature of this savings account is the cumulative power of its contribution room. Even if you haven’t set up your TFSA yet, your contribution room has been accumulating since 2009 or from the year you turned 18 (or 19 in some provinces). This means you can catch up on unused contributions whenever you're ready.
Let’s put some numbers into perspective. Suppose you became an eligible TFSA holder in 2009. That makes your total contribution room $102,000 as of 2025. Why? You have to account for an annual TFSA contribution limit that has changed through the years.
As of 2025, the annual contribution limit is $7,000. See the table below to explore how the limits have changed since 2009.
Year | Annual Contribution Limit |
2009 | $5,000 |
2010 | $5,000 |
2011 | $5,000 |
2012 | $5,000 |
2013 | $5,500 |
2014 | $5,500 |
2015 | $10,000 |
2016 | $5,500 |
2017 | $5,500 |
2018 | $5,500 |
2019 | $6,000 |
2020 | $6,000 |
2021 | $6,000 |
2022 | $6,000 |
2023 | $6,500 |
2024 | $7,000 |
2025 | $7,000 |
From 2009 to 2014, the numbers ranged from $5,000 to $5,500. Surprisingly. 2015 marked a considerable spike in the annual contribution limit, reaching an unprecedented $10,000. However, such an incline didn’t stick around for long. In 2016, the annual contribution limit reverted to $5,500, aligning once again with inflation-indexed adjustments.
Note that the investment income within your account and changes in its value don’t affect your contribution room. However, withdrawals from your TFSA create a new contribution limit for the following calendar year. Here’s how it works.
How to Track Your TFSA Contribution Room
The CRA sets an annual contribution limit for TFSA holders, which is adjusted periodically to account for inflation. However, it’s not the only criterion to consider when calculating your limit. Any unused contribution room from previous years automatically carries forward and is added to your limit for the next year.
Accurately tracking your available TFSA contribution room is critical to avoid penalties for over-contribution. Over-contributions lead to fees in the form of monthly tax equal to 1% of the excess funds in your account. These fees will continue to apply until the excess contribution is withdrawn or corrected. Your TFSA can also be subject to other penalties if you deliberately contribute more than your allowed limit.
The best way to avoid penalties is to stay informed about your lifetime TFSA contribution limit. You can calculate it yourself, knowing when you became an eligible TFSA holder and your annual contribution limits.
Alternatively, check your TFSA contribution room with the CRA’s “My Account.” Just sign in to My Account on the federal government website and explore all the pertinent details about your tax return, notice of assessment (NOA), and TFSA contribution room.
Other TFSA Regulations and Limits
While a TFSA offers a straightforward savings strategy, beware of all rules and regulations before opening an account. Explore the list below to get a well-rounded understanding of how a TFSA functions:
Contribution eligibility: Only the account holder can contribute to their TFSA, manage investments, and withdraw funds. You can provide your spouse or a common law partner with resources to contribute to their respective TFSAs. Just be sure that your partner doesn’t exceed their contribution limits.
Availability to Canadian non-residents: If you aren’t a Canadian resident, you can still use a TFSA. However, you cannot accumulate contribution room while being a non-resident. You may also face penalties for contributing as a non-resident. For example, you’ll have to pay a monthly fee equal to 1% on any contributions made while you're a non-resident.
Contribution limit: When it comes to choosing the best option to save for retirement, you may be wondering if an RRSP or TFSA is the better route to follow. The answer boils down to the contribution limits and the withdrawal rules each account sets. With a Registered Retirement Savings Plan (RRSP), you can contribute up to 18% of your annual income. So, if you’ve maxed out your RRSP contribution limit for the year, you could still enjoy tax-free growth on a $7,000 deposit in a TFSA. Similarly to a TFSA, your RRSP contribution room is cumulative. However, unlike a TFSA, RRSP contributions can provide tax deductions or even refunds. However, while withdrawing funds from a TFSA is tax-free, RRSP withdrawals typically are taxable.
How to Open a TFSA
Setting up a TFSA will only take a few minutes of your time. Start by checking if you meet all eligibility criteria:
Are you a Canadian resident?
Are you 18 or older?
Do you have a valid Social Insurance Number (SIN)?
The next step is to contact a financial institution where you’d like to open an account. It can be a bank, a credit union, or any insurance company of your choice. Then, provide the selected issuer with your SIN and date of birth. This information lets them register your qualifying arrangement as a tax-free savings account. Note that some issuers might ask for other supporting documents for your application.
Many financial institutions have a minimum deposit requirement, such as $1,000, to open a TFSA redeemable or non-redeemable investment. If you don’t have this amount saved just yet, you can invest your money in a TFSA Savings Account. Your money will grow tax-free until you reach your $1,000 minimum needed for a redeemable or non-redeemable 1-5-year investment.
Open Your TFSA Today
Looking for a financial expert to guide you through registering your TFSA? Contact us today!
If you’ve already opened a registered savings account with us, such as an RRSP, setting up your tax-free savings account is a matter of a few steps.
Log in to online banking.
Select Accounts > Open Account > Registered Investments
Select the TFSA type that matches your financial goals and follow the easy prompts.
Start saving tax-free in minutes. Reach out to us if you have any questions!