Question 1

What is a tax-free savings account (TFSA)?

Accepted Answer

A TFSA is so much more than a typical savings account. You can hold a mix of investments (including cash, GICs Guaranteed Investment Certificates, and mutual funds), and, generally, any investment income you earn is tax-free. That means it’s 100% yours to keep.1 With a TFSA, your deposits and investments grow quickly through tax-free investing. Generally, you pay no income tax on investment returns earned in the account, and there are no taxes on the amounts you withdraw.

Question 2

Who is a TFSA best suited for?

Accepted Answer

A TFSA is especially well-suited if: You’ve maximized your Registered Retirement Savings Plan (RRSP) contributions and want additional room for tax-advantaged savings. You’re saving up for a big purchase and want to access tax-free savings before retirement. Unlike an RRSP, you can withdraw money from a TFSA in most cases without tax any consequences. (Note: If you have already maximized your TFSA contribution, you must wait until the following year before contributing anything more to your TFSA in order to avoid penalty charges from the Canada Revenue Agency (CRA).) (See "What happens if contribute more than my TFSA contribution room" below for more details) You’re worried that investment income could have a negative impact on government benefits or tax credits that are reduced or eliminated at higher income levels. These include Old Age Security (OAS) benefits, the Guaranteed Income Supplement (GIS) and the federal age credit. Withdrawals from a TFSAT F S A have no impact on eligibility for these “income-tested” benefits.

Question 3

TFSA vs RRSP?

Accepted Answer

TFSA You don’t need to have any income to accumulate contribution room. Contributions to a TFSA are not tax-deductible on your tax return. Withdrawals from a TFSA are tax-free. Any amount withdrawn (excluding qualifying transfers) is then added to your contribution room in the following year, so that you could later re-contribute the amount that you withdrew. There is no requirement to convert the TFSA to an income payment option (e.g. a RIF or an annuity) at any age. RRSP You must have income to accumulate contribution room. A RRSP must be fully withdrawn or be transferred to a Retirement Income Fund (RIF) or annuity by the end of the year you turn 71. Contributions to an RRSP are tax-deductible on your tax return. Withdrawals from an RRSP are taxed in the year of withdrawal (with the exception of the Home Buyer’s Plan (HBP) and Lifelong Learning Plan (LLP) which are not taxed provided they are repaid on schedule). Any amount withdrawn cannot be added to your contribution room in the following year.

Question 4

Who is eligible for a TFSA?

Accepted Answer

Anyone who have achieved the age of majority in your province or territory of residence (which is 19 in British Columbia, Newfoundland and Labrador, Nova Scotia, New Brunswick, Northwest Territories, Nunavut and Yukon, and 18 in all other Canadian provinces)2; be a Canadian resident; and have Canadian Social Insurance Number (SIN)

Question 5

Can I open more than one TFSA?

Accepted Answer

You sure can. You can open more than one TFSA but the total contributions to all your TFSAT F S A accounts cannot be more than your total accumulated contribution room.

Question 6

Do you have different types of TFSAs?

Accepted Answer

An investment TFSA: In this TFSA, you can hold a mix of investments (including savings, market-linked GICsGuaranteed Investment Certificates, stocks, ETFsExchange Traded Funds and mutual funds), which can help you grow your savings. You can open this at a branch or by phone. A basic savings TFSA: In this TFSA, you can hold cash in a savings account, and you can open this online.

Question 7

What kind of investments can I hold in a TFSA?

Accepted Answer

A TFSA is generally permitted to hold similar investments that a RRSP can hold. This includes cash, mutual funds, ETFs, stocks, GICs (including market-linked GICs) and bonds. We can help you think through the best option for you, and direct you to the appropriate BMO partner if you are looking for an investment option we cannot offer in the branch. Think of it as a savings and investments 'bucket.' You can fill it with a mix of investments that align with your goals—whether it’s saving for a trip, renovating your home, or putting money away for a rainy day.

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