While many Canadians are focused on the looming RRSP deadline and maximizing contributions, it’s important that they don’t lose sight of an important alternative investment, a tax-free savings account.

A major benefit of TFSAs is that money invested in them can grow tax free-for life, says Ahmad Dajani, vice-president of investments, guaranteed investment certificates and sales tools for Scotiabank in Toronto. “They provide great flexibility because you can pay as little as you like up to $5,500 a year and withdraw funds without penalty or tax consequences.”

TFSAs are a useful special purpose savings vehicle for anyone wanting to save for a major expense, such as a renovation, car purchase or other outlay. Alternatively, investors – including retirees — can use TFSAs to generate dividend, interest or capital gains income tax-free.

Here are some things you should know about TFSAs:

1. The starting age for contributions is 18.
2. There’s no age limit to contributing to TFSAs; you can continue to invest even after the age of 71, the limit for RRSPs.
3. Investors can contribute a maximum of $5,500 per year in 2014.
4. If you have not contributed in the past, or did not meet maximum contributions in any given year, you can catch up on unused contributions (Up to the $31,000 limit as of this calendar year).  The best way to keep track of your unused contribution room is to check out your notice of assessment from the CRA.
5. Be careful not to over-contribute or you will incur tax penalties equal to 1% of the highest excess amount in the month and for each month you are over.
6. You can withdraw money at any time without penalty or tax consequences. However, you can’t re-contribute that amount in the same calendar year. (If you only need the funds for a short time and plan to replace them quickly, the best strategy is to make the withdrawal late in the calendar year so you can re-contribute Jan. 1 of the following year.)
7. TFSA withdrawals do not impact any government benefits or assistance programs such as child tax benefits, old age security or other guaranteed income supplements. This means low-income earners can generate tax-free income without it affecting their support.
8. A TFSA is not just a cash account. It can be structured so you can invest in various vehicles, such as GICs, bonds, mutual funds, stocks and exchange-traded funds, among other options.
9. Unlike RRSPs, deductions are not tax deductible. However, you can double up on tax-free income generation by opening a second TFSA in your spouse’s name.
10. For those on a limited budget, the best way to keep up with contributions is to set up an automatic monthly withdrawal plan.