The Tax Free Savings Account (TFSA) contribution limit for 2021 has been set at $6,000, the Canada Revenue Agency says.
The limit is unchanged from 2020 and was last increased in 2018. It increases in $500 increments linked to increases in inflation.
TFSAs were introduced in 2009 to encourage Canadians to save for retirement. The name confuses many people because they think a TFSA is a savings account, but it can hold bonds, stocks and ETFs, as well as cash.
The difference between a TFSA and a Registered Retirement Savings Plan (RRSP) is that contributions to an RRSP are tax deductible, while a TFSA contribution is made with after tax money.
Money inside a TFSA grows tax free and amounts withdrawn in any year can be added back, but only in the next calendar year. RRSP withdrawals are taxed at your rate.
Which one is better? It all depends. Both are great ways to save.