Tax Free Savings Accounts (TFSA) were introduced in 2009. They were created under the premise that this type of account would provide an incentive (no taxes) for Canadians to save money. They are a simple and very useful financial tool.
TFSAs are an excellent way to save for virtually any goal; your emergency fund, a down payment on a new home, a new car, or a dream vacation. If you’ve maximized your RRSP, or have limited RRSP room because you belong to a pension plan, a TFSA can be a great way to supplement your retirement savings too.
Here’s a few more basic points you need to know about TFSAs:
TFSAs are available to all Canadians 18 years of age and over with a SIN number. Unlike an RRSP, you don’t need to have any earned income to gain the contribution room.
The annual amount you are allowed to contribute to your TFSA is $5500. The limit is indexed to inflation so over time that limit will be increased.
If you don’t make a contribution to a TFSA, the unused contribution room is carried forward. TFSAs were created in 2009. As of 2018, the total cumulative contribution room is now $57,500.
TFSAs can hold the same eligible investments as RRSPs. This includes everything from a simple daily interest savings plan, fixed income investments, mutual funds or exchange traded funds, and individual stocks.
You can take money out of your TFSA without paying withholding tax. This is because, unlike an RRSP contribution, you didn’t get any tax credit for putting the money into your TFSA. You don’t get a tax benefit for putting the money in, so you don’t get a tax bill when you take the money out.
Any money you take out of your TFSA you can re-contribute to it provided you do that in the following year (or later). Doing so will not affect your contribution room.
The Tax Free Savings Account is one of the most versatile savings tools you can use. Use it to your maximum advantage. To learn more ,visit the CRA website or talk to an investment professional.
