• Canadians can enjoy tax-free savings.investment image by Kit Wai Chan from Fotolia.com
  
  The Tax-Free Savings Account, or TFSA, is a savings option for Canadians that is similar to an Individual Retirement Account, or IRA, that is available in the United States. Put into effect in January 2009, the TFSA is open for residents of Canada who meet investment requirements. It is available through the Canadian government as a vehicle to save for different lifetime options, such as emergency needs or retirement.
  
  

Types

• Tax-free savings accounts are offered by banks, credit unions or insurance companies. Types of TFSAs include savings, mutual fund and self- directed. A savings TFSA is good for emergency savings accounts funds, whereas a mutual fund TFSA may allow you to accumulate a higher level of interest. A self-directed TFSA allow you to have more control of your investments.
  
  

Eligibility

• In order to be eligible for a TFSA you must be a Canadian resident. This means you have to have a valid Canadian social insurance number, or SIN. Living outside Canada for more than half the year may disqualify you from residency, however, residential ties, such as marriage or dependents living in the country and having a Canadian drivers license or credit cards may allow you to meet eligibility requirements. Check the Canadian Revenue Agency for more information on residency status. You must also be at least 18-years-old to contribute to a tax-free savings account.
  
  

Contributions

• You can contribute up to $5,000 per year to a TFSA account even if you accumulate interest from a self- directed TFSA account. Your contribution amount is based on your individual income from the previous year. If you are not able to contribute the full amount one year, you can add that into the contribution for the following year.
  
  

Withdrawals

• You can take money out of your tax-free savings account and it will not affect your contributions in future years. The money you withdraw can be added back to the fund irregardless of the amount withdrawn. Although TFSA accounts are not tax-deductible, there are no penalties for withdrawing early and no taxes on capital gains.
  
  

Investments

• Investment income earned in a tax-free savings account is not taxed. Investment options for a TFSA account include bonds, mutual funds and Guaranteed Investment Certificates, or GICs. Investment income and capital gains are not taxed in a TFSA. Self-directed TFSAs can be set up through your financial institution and include many investment opportunities.
  
  

Estate

• In order to transfer a tax-free savings account upon your death, either designate a beneficiary or a successor holder. A spouse or common law partner can act as a successor holder or beneficiary. A will may be necessary in some provinces to ensure the proper transfer of funds.