What is a TFSA?
If you’re a Canadian who is 18 or older, the Tax Free Savings Account is probably the most important investment account you’ll ever open. Despite the name (which is misleading), it’s not a savings account. It’s a registered investment account where everything you earn inside it, dividends, interest, capital gains, grows completely tax-free. You pay no tax when you contribute, no tax while it grows, and no tax when you withdraw.
That last part is the lever. Unlike an RRSP, where the government takes a cut at withdrawal, a TFSA dollar out is a real dollar. If your TFSA grows to $500,000, you keep all of it.
How much room do you have?
Every year the CRA gives you new contribution room. For 2026, it’s $7,000. If you’ve never contributed, your total accumulated room (since turning 18 or since 2009, whichever is later) could be over $102,000.
A few rules worth knowing:
- Unused room carries forward. If you didn’t contribute last year, that room rolls over.
- Withdrawals restore room. Pull $10,000 out in June, and that $10,000 becomes available again on January 1 of the next year.
- Over-contributions are penalized. The CRA charges 1% per month on any excess. Check your limit before contributing.
Not sure where you stand? Use the TFSA Room Calculator to figure out your exact room based on your age and contribution history.
How to open one
Any Canadian bank or discount brokerage will open a TFSA for you. Look for commission-free ETF purchases and low account fees. I compared a couple of options in Wealthsimple vs Questrade, but the landscape changes fast. What matters more than where you open it is that you actually open it. A step-by-step walkthrough is in Self-directed investing in 5 steps.
What to invest in
For most people, a single all-in-one index ETF like VEQT or XEQT is the answer. One purchase, globally diversified, MER around 0.20-0.25%. See What are all-in-one index funds for a breakdown of the options, or VEQT vs XEQT if you’re stuck choosing between the two big ones.
If you want to see what your contributions could grow to over 20-30 years, plug your numbers into the ETF Growth Calculator.
Withdrawing from a TFSA
Unlike the RRSP, withdrawing from a TFSA has zero tax implications. Take the money out and spend it however you want. The only thing to remember is that the room comes back on January 1 of the following year, not immediately. So if you withdraw $10,000 in March and re-contribute it in April, you’re over-contributing.
TFSA vs RRSP
Both accounts offer tax-free growth. The difference is when you pay tax. The TFSA uses after-tax dollars going in and is tax-free coming out. The RRSP gives you a deduction going in and taxes you coming out. When your marginal rate is the same at contribution and withdrawal, they produce the same after-tax result. I proved this with numbers in RRSP is a TFSA in disguise.
For a practical decision on which to prioritize, see TFSA or RRSP or Unregistered or try the Account Selector tool.
What to do next
Open a TFSA at a discount brokerage, check your room with the TFSA calculator, buy an all-in-one index fund, and stop thinking about it. If you want to see what $500/month at 7% looks like over 30 years, the answer is about $567,000. Tax-free.
TFSA contribution limits in this article reflect the 2026 tax year ($7,000 annual, $109,000 cumulative since 2009). Limits are indexed to inflation. For current room calculation, use the TFSA Room Calculator.
