How the Tax-Free Savings Account Works
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As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to a TFSA. This is an increase from the annual contribution limit of $5,000 for 2009 through 2012 and reflects indexation to inflation.
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Investment income earned in a TFSA is tax-free.
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Withdrawals from a TFSA are tax-free.
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Unused TFSA contribution room is carried forward and accumulates in future years.
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Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
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Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
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Contributions are not tax-deductible.
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Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
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Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
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TFSA assets can generally be transferred to a spouse or common-law partner upon death.