Consider it a savings account that can provide long-term compounded growth without the intrusion of personal taxes.
But down the road – with time, reinvestments, and contributions – the “buffian” effect of compounding, tax-free growth will delight you.
Company pensions, RSPs, Retirement Income Fund, the Canada Pension Plan and Old Age Security are all taxed as earned income, but the nest egg built up over a working lifetime in a TFSA will provide income payments that are completely tax-free.
You can only save up to a certain amount each year (usually around $5,500) in a TFSA, and you have to be at least 18 years old and Canadian to open one, but there are no income requirements, and you can carry any unused contributions into the next tax year.
An excellent way to start is to arrange a monthly savings contribution with your financial institution. That can be as little as $25 or as much as $500 a month.
For a 25 year-old, monthly contributions of $100 will accrue to $81,128 by age 50 when compounded annually at 7.2%
If you opt to contribute $500 monthly, by the time you’re 50 you’ll have $405,639.