The Government wants you to save! And not just for retirement. So it’s introduced the Tax-free Savings Account (TFSA). Whereas an RRSP is intended for retirement, a TFSA is like an RRSP for everything else in life. Use it to save for home renos, a car, education, even an emergency fund. The choice is yours.
And here’s the big bonus — you don’t pay tax on the growth or earnings of your investments, even when you withdraw your money. And you can withdraw it any time, for any purpose.
Lots of great benefits
- Use it to save for anything
- Investments grow tax-free, so you don’t pay tax on growth, dividend or interest income
- $5,000 is the yearly maximum contribution for everyone. This will be increased periodically to keep pace with inflation
- Unused contribution room is added, or carried over, to the next year, just like an RRSP. So if you contribute only $3,000 in year 1, your contribution limit in year 2 would be $7,000 ($2,000 carried over from year 1, plus $5,000 for year 2)
- Withdraw money anytime, for any reason, tax-free. Put the money back in any future years
- Amounts you withdraw are added to your contribution limit next year. So, if you contributed $5,000 in year 1, then withdrew $1,000, your contribution limit in year 2 would be $6,000 ($1,000 from year 1, plus $5,000 for year 2)
- Withdrawals won’t trigger clawbacks on Old Age Security, the Canada Child Tax Benefit and other federal income-tested benefits or credits because withdrawals aren’t considered income
- Contributions are allowed to a spouse’s TFSA depending on their available contribution room
- Can transfer tax-free to a spouse at death
- Choose a variety of investments — all the same ones you’d hold in an RRSP
- No need to convert or withdraw money at age 71
- Intended for almost everyone, as long as you’re a Canadian resident, 18 years or older with a SIN number, and have filed a tax return, even if you don’t earn an income or are retired.
- Only a few drawbacks
- Contributions aren’t tax deductible like they are for an RRSP
- Claiming a capital loss isn’t allowed if your investment’s value drops
- Interest charges aren’t deductible on money you borrow to contribute
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal advice. Aviso Wealth Inc. is a Member of the Canadian Investor Protection Fund.
For more information on this or other retirement options,
contact Devron at 204-937-6557 or email firstname.lastname@example.org
Devron can provide you with an expert’s perspective and help you invest in the future with your own Tax-Free Savings Account.