5 Ways To Make The Most of Your TFSA


The Tax-Free Savings Account (TFSA) is the best long-term wealth-building vehicle available to Canadians, but most people don’t see it that way.

The Tax-Free Savings Account is one of the only places you can earn completely tax-free income on your investments. Any interest, dividends, or capital gains within your TFSA will never be taxed — not now, not in future years, not if you contribute a certain amount, not if you make a withdrawal, n e v e r. This is unlike other investment vehicles like the Registered Retirement Savings Plan (RRSP), where you don’t pay taxes on the years you contribute but will pay taxes when you make a withdrawal. Furthermore, you never lose your TFSA contribution room. If you take money out, you can put it back in the following year, making this also one of the most flexible investment tools available.

For a more in-depth comparison of the TFSA vs. the RRSP, click here

If you don’t yet have a TFSA, now is the time to get one. If you already have one, you might be looking for ways to make the most of it this year. Here’s my list on how to maximize and max out your TFSA, no matter your starting point!

1. Know your TFSA contribution limit

The TFSA contribution limit for 2018 is $5,500. However, you are also entitled to catch up on any past contribution room for every year that you were at least 18 years old. The Tax-Free Savings Account was introduced in 2009, so if you were at least 18 in that year, your total lifetime contribution limit is now $57,500. However, if you were born later than 1991 and therefore turned 18 after 2009, your total lifetime contribution room depends on your age. Here’s a quick guide:

This is your total lifetime TFSA contribution room based on your birth year. Note the contribution limit in 2015 was $10,000, giving everyone born in 1997 or earlier a boost!

It’s important to know your contribution room, so you can save accordingly. If you haven’t yet maxed out your TFSA, you can contribute extra this year to catch up. If you’re at or near your contribution limit, be careful to avoid over-contributing, as there are penalty fees.

If you make a withdrawal from your TFSA in 2018, that amount (along with the next year’s contribution room) will be added back as available contribution room in 2019.

2. Open more than one TFSA

This might seem like an odd suggestion if only because most people don’t know they can have more than one TFSA, but having more than one TFSA can make sense depending on your financial goals.

If the Tax-Free Savings Account is the only place you’re currently saving, you’ll want to have both cash and investments under the TFSA umbrella. For example, it might make sense to have a TFSA savings account for something like your Emergency Fund, as well as a mutual fund or brokerage account for your long-term retirement savings.

You can have as many TFSAs as you want, but you still have to adhere to the total annual and lifetime contribution limits. This means if you open two Tax-Free Savings Accounts, your total contribution room for 2018 is still $5,500. Likewise, your lifetime contribution room remains the same according to your age as calculated in the table above. Make sure to add up the sum in all your TFSAs to make sure you’re staying within your limits.

3. Invest within your TFSA

Most people don’t know, but you don’t have to save in your TFSA. You can use it to invest.

This isn’t readily obvious because the account is called “Tax-Free Savings Account”, but the truth is, your TFSA doesn’t have to be a savings account. You can (and should) buy investments like GICs, stocks, bonds, ETFs, mutual funds, and more under the Tax-Free umbrella. With current interest rates on savings account hovering around 1% or less, the tax-free benefits of this investment vehicle are not being maximized if you leave your cash in a savings account. By purchasing higher-return investments like mutual funds or stocks, your investment will grow faster and you’ll really reap the rewards of tax-free gains.

4. Use your TFSA for building wealth, not planned spending

If you’re using your TFSA to save for vacations or consumables, you’re wasting its power. This is a place to earn tax-free investment income.

Don’t use your TFSA to “save” money that you plan to spend. This defeats the power of the account. Instead, consider the money in your Tax-Free Savings Account off-limits as soon as you make a deposit. In other words, every penny you put into this account should stay there.ย 

One of the best ways to keep your hands out of your TFSA when the temptation to spend comes up is to keep your TFSA at a different institution than your primary bank. This way, when you log on to your online banking to manage your regular spending, you don’t see your savings balance tempting you to make a withdrawal.

5. Devote an income stream to growing your TFSA

To max out this year’s contribution room of $5,500, you’ll need to save $458.33 per month. With high costs of living, huge debt loads, and other financial obligations, it’s not easy for most people to find a spare $458 to tuck away each month.

To overcome this, one of the best things you can do is find a side hustle income to fund your TFSA so you don’t have to budget the cash from your regular paycheque. This might be something like part-time job or hobby, or doing something simpler like if you serve tables, banking your paycheque and putting all your tips in your TFSA. Better yet, when you file your income taxes this year, put your income tax refund in your Tax-Free Savings Account!

Even if you can’t max out your TFSA this year (or any year), don’t beat yourself up. You can catch up in future years, but more importantly, earning tax-free returns on any amount is better than $0. Saving $2,000 or $1,000 or even $500 is still worthwhile, so don’t make excuses or procrastinate getting started until you have more money.

Final thoughts

The Tax-Free Savings Account (TFSA) is a poorly-named, misunderstood golden investment unicorn for Canadians, but only if they use it right. Learn your limit, open an account, and start saving. You’ll thank yourself by next year!


  1. moneyhelp

    Great article!

    I would add, however, that since you can invest stocks and bonds into your TFSA, the investor should be aware that if investing in US individual stocks (I’d imagine other countries as well, not sure) the 15% withholding tax still applies, as the US doesn’t recognize the TFSA as a retirement vehicle and to make matters more difficult, unlike a non-registered account, you cannot recover the tax loss by filing a foreign dividend tax credit, that’s why most investors will keep US equities in an RRSP due to the tax treaty between Canada & US.

    Great article and love point #4!

    • Bridget Casey (Author)

      Yeah I’ve discussed this in other videos/posts and the important thing to note is the US stock market has returned excellent capital gains over the past 8 years. Last year was nearly 20%.

      Missing out on a 20% gain in capital in order to save 15% on a 3% dividend is not a good long-term play!

      I hold most of my US holdings in my RRSP but it’d be a shame not to clean up in the TFSA just to avoid a witholding tax ๐Ÿ˜‰

      • moneyhelp

        I agree, if my RRSP is maxed out, I’d prefer to invest my US stocks in my TFSA, since the rest of the dividends and capital gains are tax free forever. ๐Ÿ™‚

      • Emily

        Does this apply to global equity funds? Or will gains from funds outside of Canada AND the US also be taxed? I heard global investment income would be taxed. I am interested because I do not yet make enough money to make contributing to my RRSP my best bet. I don’t benefit from the tax credit for deposits to the RRSP. So, it makes sense to put my savings into the TFSA but I want to benefit from global markets.

  2. Jenn

    what happened to the iconic teal background for your videos?! ๐Ÿ™‚ I really liked it!

  3. Andrew O'Neill

    Finally, someone saying to use it as a long term investment!!

  4. For sure TSFA should be viewed as a key long term investment vehicle.http://www.moneyaftergraduation.com/2018/01/16/make-the-most-of-your-tfsa/#

  5. Katie

    This may seem like a silly question, but if using a TFSA to hold investments do the increased value of the investments count toward your contribution room? If you have, say $4200 in contribution room and you transfer $4000 cash into a TFSA in January, and by December your portfolio is valued at $4200, is your contribution room for the year fully used up?

    • Bridget Casey (Author)

      Not a silly question at all! The answer is no, increased value of the investments do NOT count towards contribution room.

      If you have $4,200 of contribution room and move $4,000 to a TFSA and it grows to $4,200, you still have an additional $200 of contribution room!