Have you opened your TFSA yet?

Update: I was wrong.  TFSA contribution room accumulates every year that you are 18 or older and a resident of Canada throughout the year. You do not have to set up a TFSA to earn contribution room.  It still may make sense to keep your emergency funds (if you maintain any) in a TFSA, but there’s no rush.  Moral? Check thoroughly if people in the financial services industry tell you something!

Canadians have a new Tax Free Savings Account (TFSA) this year.  Every Canadian resident over 18 gets $5000 contribution room each year, and any income earned is tax free (just like an RRSP). Unlike an RRSP, withdrawals are tax free too.

Now the important part. If you don’t open an account, you don’t get the $5000 contribution room. You don’t have to put money in the account right away, but you need to open it before Dec 31, 2009.

Go open one today!  And tell your friends!

1. Take a look at a comparison chart of different TFSA accounts.
2. Choose a company
3. Open an account
4. Deposit your $1, or $25 or whatever
5. Put more money in when you have it. It’s a good place to keep your Emergency Fund if you keep one.
6. Watch your money grow tax-free

Note that tax-free doesn’t necessarily mean fee-free.  Bank fees can eat up any gains you might get.  If you’re just opening the account to get the contribution room, and not putting much money in to begin with, I’d recommend the ING Direct TFSA Savings Account. Simple, no fee, and no minimum contribution.

Once you have more money in your TFSA and want better returns, you can take the money out of your first account, and move it to a TFSA Investment Account, where you can buy mutual funds, stocks and other things which can make a higher return.

The Government of Canada has details on How the Tax-Free Savings Account Works, and there is lots of other detail on the web.

Happy saving!