No matter your age or long-term goals—whether you're saving for a house, building an emergency fund, or planning for retirement—the Tax-Free Savings Account (TFSA) is a versatile option that meets your needs. As the lifetime contribution limit for the TFSA increases, the benefits of this account become even more significant. Let’s talk about it.
Sheltered Growth
The main advantage of the TFSA is its tax benefits. Any growth made in the account is tax-free: dividends – tax-free, interest – tax-free, capital gains – tax-free. Additionally, withdrawals from a TFSA are not subject to taxation.
TFSAs can also save on probate fees. Probate is the last chance for the government to collect money before a person’s assets are passed on. Registered accounts with beneficiaries, such as TFSAs, avoid probate fees and generally distribute money faster than accounts without a designated beneficiary. BUT BE WARNED, if you do not name a beneficiary, the account will be subject to probate upon death.
TFSA Room for 2025
One of the growing advantages of the TFSA is its increasing lifetime limit, which rises every January 1st for Canadian residents starting on their 18th birthday, regardless of income.
Your current room is reflective of your lifetime limit (see chart below), minus all TFSA contributions, plus the withdrawals you made in previous calendar years.
TFSA limit for 2025 = Lifetime limit
– ALL contribution made to a TFSA
+ value of withdrawals made in 2024 or earlier*
*CRA provides a January 1st snapshot of your TFSA room on your notice of assessment or myCRA. CRA does not track TFSA transactions throughout the year. Therefore, any withdrawals made in the current calendar year are not re-earned until January 1st of the following calendar year. For example, a 2025 withdrawal will be reflected on your Jan 1, 2026, CRA snapshot, and cannot be recontributed until 2026.
Inflows and Outflows of TFSAs
Many people debate whether to add to their RRSP or TFSA. To understand which is better for you, you must understand their differences.
The RRSP's purpose is to become a source of income in retirement. With that in mind, RRSP contributions provide a tax deduction on your current income tax; however, you will have to pay income taxes on the withdrawals in the future. Making it the ideal choice for current tax savings.
TFSAs are the opposite. While there is no tax deduction on contributions, the benefit is that you won't pay taxes on withdrawals. This makes TFSAs an ideal option for future tax savings, especially for managing costs associated with unexpected or significant expenses, such as car repairs, down payments, dental work, etc. It also prevents high-income retirees from worrying about the OAS clawback, as the Old Age Security benefit starts to reduce if your income exceeds a certain annual threshold. The 2025, the OAS clawback begins at an income of $93,454.
Many financial strategies involve TFSAs. To discuss strategies that would complement your financial plan, contact KLT Wealth Management.
~ Courtney Beach, QAFP
