How are contributions to a Tax-Free Savings Account (TFSA) made?

Contributions to a Tax-Free Savings Account (TFSA) are made with after-tax dollars. This means that the money you contribute has already been taxed as part of your income. The key advantage of this structure is that any money earned within the TFSA, including interest, dividends, or capital gains, is completely tax-free, both while it's in the account and when it is withdrawn.

Contributing with after-tax dollars allows individuals to benefit from tax-free growth and tax-free withdrawals, providing significant flexibility in managing their finances. This aspect is particularly beneficial for long-term savings goals, as it encourages individuals to save and invest money without the concern of future tax implications on their earnings.

In contrast, pre-tax dollars would imply that the contributions had not been taxed yet, which does not apply to TFSAs. Tax-deductible dollars are usually associated with registered retirement plans where contributions can reduce taxable income, unlike TFSAs where the contributions are not tax-deductible. Additionally, employer contributions are more relevant to pension plans or registered accounts like RRSPs, rather than to individual TFSAs, which are set up and managed by the individual account holder.