Tax Free Savings Account
The Tax Free Savings Account (TFSA) has been called the most exciting financial planning tool for Canadians since the advent of the Registered Retirement Savings Plan (RRSP) over 50 years ago. The TFSA is a flexible savings tool that can be used for a multitude of reasons throughout the course of your life.
What is a TFSA?
The TFSA is a savings account that can shelter investments from tax forever. Canadian residents over the age of 18 are granted $5,000 of contribution room each year and if not utilized this room can be carried forward indefinitely.
Unlike an RRSP, contributions into a TFSA are not tax-deductible, however, all future investment income and gains are tax-free. There are also no restrictions regarding withdrawals from the plan. You are free to withdrawal funds at any time without any tax consequences. As an added bonus, any funds withdrawn from the plan can be re-contributed in the future.
What can you hold withing a TFSA?
The eligible investments which can be held within a TFSA are virtually the same as an RRSP. Mutual funds, Segregated funds, GICs, Stocks and Bonds are the most common examples.
Are there any age limits for a TFSA?
Unlike an RRSP which must be converted to a Registered Retirement Income Fund (RRIF) or an Annuity by age 71, there are no such restrictions with the TFSA. Seniors who rely on GIC income for their retirement would be well advised to transfer $5,000of their GICs in-kind each year to a TFSA, resulting in tax-free income.
Other TFSA Advantages
- Contributions to a TFSA are not tied to your income.
- All eligible Canadians receive the same contributions room.
- Withdrawals from a TFSA are not included in income. Therefore they will not affect income-tested benefits such as Old Age Security.
- Flexibility to save for a variety of purposes including short-term, medium-term and long-term goals
To learn more about Tax Free Saving Accounts, please contact us.
