Introduced in January 2009, a Tax-Free Savings Account (TFSA) enables Canadians age 18 and over to accumulate tax-sheltered earnings. While TFSA contributions aren't tax deductible, withdrawals are non-taxable.

The $5,000 TFSA annual contribution maximum per person is cumulative. Including carried-forward contribution room from 2009 and 2010, new accountholders can deposit up to $15,000 into their TFSAs during 2011.

Smart Strategy No. 1: Make tax-efficient investments.
TFSAs can hold the same types of assets as Registered Retirement Savings Plans (RRSPs), including mutual funds, stocks, guaranteed investment certificates (GICs), bonds and cash deposits. TFSA capital gains, dividends and interest are all tax-free.

Immune from foreign-content limits, TFSAs can serve as global portfolios comprised of equities from the United States, China and other countries.

Tip: Dividends from foreign stocks held in a TFSA are non-taxable in Canada, but are subject to foreign withholding taxes at source.

Smart Strategy No. 2: Accumulate emergency savings.
Thirty-six per cent of Canadians use TFSAs for emergencies, according to a 2009 Ipsos Reid poll.

Over half of TFSA assets are in low-return savings accounts and cash that can be quickly accessed. Personal finance experts recommend that families budget at least 3 to 6 months of backup savings in case of job loss, illness or other unforeseen setback.

Tip: Canadians can have multiple TFSA accounts, each targeting specific objectives like emergency withdrawals or long-term capital growth.

Smart Strategy No. 3: Maximize retirement income.
Consider a scenario in which you contribute $5,000 per year into an RRSP starting at age 20. Assuming a 6 per cent return, the value of your RRSP will compound to $1.1 million at age 65. A full withdrawal is subject to a 40 per cent tax rate, leaving only $660,000 in available cash.

TFSAs are much more flexible, with no tax levied on full or partial withdrawals. But because RRSP contributions are tax deductible at the front-end, a combination of RRSP and TFSA investments is the most sensible way to optimize retirement savings.

Seniors of all ages can make TFSA contributions even during retirement, building up tax-free funds to cover medical expenses and other costs in their golden years.

Tip: Because year-round deposits are allowed, TFSAs are excellent candidates for automated monthly contributions and dollar-cost averaging.

Smart Strategy No. 4: Keep your government benefits.
RRSP earnings can trigger reductions in Old Age Security pension benefits, the Guaranteed Income Supplement and other social assistance plans.

However, TFSA earnings are excluded from income tests that determine government benefit eligibility. Similarly, TFSA withdrawals are exempt from child tax benefit calculations and won't reduce those amounts either.

Tip: Financial advisors can explain in detail how TFSAs complement government programs.

Smart Strategy No. 5: Take advantage of home buyer incentives.
Canada's Home Buyers Plan allows first-time home buyers to withdraw up to $25,000 from their RRSPs, provided that borrowed amounts are repaid within 15 years.

TFSAs have no such constraints, enabling Canadians to contribute available TFSA funds towards any number of residences without repayment. TFSAs can also fund home renovations and other property improvements.

Tip: Use your TFSA to save for maintenance and upgrading costs as a way to increase your home's value.

Smart Strategy No. 6: Save on spousal taxes.
Normally, you pay taxes on returns from contributions to your spouse's investments. But with a TFSA, there is simply no tax to impose on the contributing spouse. Depositing money into your spouse's TFSA can be an effective way to split income, particularly if your spouse's earnings are significantly less than yours.

If either spouse dies, non-taxable TFSA amounts can be transferred to the survivor. Proceeds aren't necessarily taxable, even when that spouse passes away, since children can also inherit tax-free TFSA proceeds.

Tip: Interest on money borrowed to fund any TFSA purchase isn't tax deductible, however.

Smart Strategy No. 7: Protect yourself from TFSA penalties.
TFSA over-contributions are penalized at a rate of 1 per cent per month. For example, if your contribution room is $5,000 and you deposit $10,000 into your TFSA during January, the over-contribution penalty on the excess $5,000 contribution is $600 after 12 months.

A common mistake occurs when accountholders re-contribute funds in the same year that TFSA amounts are withdrawn. To take advantage of TFSA contribution space freed-up by withdrawals, you must wait until the following year to replenish the redeemed amounts.

Owners of multiple TFSAs also incur penalties when they withdraw then re-deposit funds into another TFSA. Avoid over-contribution fees by directly transferring amounts between two different TFSAs.

Tip: Use TFSA reports to carefully budget, track and review contributions, withdrawals and earnings.

See related: Simple strategies for preventing senior bankruptcies; Experts to Generation Y: Save with your credit card