The Smart Cookies never refuse free money. Here’s all you need to know about how putting your money into a tax free savings account (TFSA) can have you reaping all the rewards, without the government taking their cut.

Tax Free A TFSA is a government registered savings account that allows you to contribute up to $5000 every year. The bonus is that any interest earned on that money is tax free, unlike every other type of investment. And the more you can put in as a lump sum to start, the more interest you’ll earn. So if you can, try making the largest contribution you can right at the start, rather than making 12 monthly payments.

Room to Grow If you can’t make your full contribution one year that room is never lost. Say you can only afford $2000 the first year. The next year you’d be allowed to put in the regular $5000 limit, plus the additional $3000 you didn’t contribute the year before. Or if you need to withdraw $1000 one year, the next year you’ll be allowed to put that back, on top of the yearly $5000 limit.

Goal Getters While RRSPs (Registered Retirement Savings Plan) are a great place to put your retirement savings, TFSAs are the perfect spot to put money for short to medium goals - whether it’s saving up for a down payment for a home, buying a new car, or that dream vacation. That’s because there are no restrictions to taking money out of a TFSA. You can withdraw your funds any time and for anything you want without paying any penalties, like you would with an RRSP if you take the money out before retirement.

Not Like the Other A TFSA is also different from an RRSP in that you don’t get a tax deduction for your contribution. But when you do withdraw your TFSA funds, they aren’t counted as part of your income like an RRSP. So it won’t affect you qualifying for any income based government benefits such as the GST credit or Child Tax Benefit.

Pick and Choose The one way a TFSA is like an RRSP is that you can put your savings into the same types of investments - everything from a high interest savings account to GICs, stocks and bonds. The amount of interest you earn depends on the type of investment. But even if you only get a 3% rate of return, and put away $200 a month for 5 years, you’d earn almost $1000 of tax free interest. In a regular savings account, you’d have to pay almost $300 in taxes on that interest.

Family Affair Anyone 18 years old or older can contribute to a TFSA. If you max out your own contribution room, you can always give money to your spouse or child over 18 to put into their own TFSA. Since the interest earned is tax free, there’s no penalty to you.