Tax-free savings accounts (TFSAs) should be on your personal savings radar. Since they were first introduced by the federal government in 2009, TFSAs have been acknowledged as a great vehicle for tax-free savings growth. To make sure you get every TFSA benefit, here is what you need to know about TFSAs.
Every Canadian resident over 18 years of age is eligible to open a tax-free savings account.
Contributions to investments held within a TFSA are not tax deductible but do grow on a tax-free basis.
The annual TFSA contribution limit is indexed to inflation in $500 increments. In 2013, the Canada Revenue Agency increased the limit to $5,500, where it remains for 2015.
Youll maximize the value of your TFSA by making the most of all available contribution room. But even if you dont use all your contribution room every year, it accumulates year after year, so you can use it in the future.
If you have never had a TFSA account and have been a Canadian resident and 18 years of age since 2009, you will have $31,000 in unused TFSA contribution room.
If you already have a tax-free savings account, your 2015 annual contribution room is calculated by taking:
The annual dollar limit for 2015 of $5,500.
Plus the amount of withdrawals from 2014 (excluding withdrawals of excess contributions, qualifying transfers, or other specified contributions).
Plus any unused contribution room from 2014.
If you make a withdrawal, the earliest you can lsquo;earn back your TFSA contribution room is the first day of the year after the TFSA withdrawal was made.
If you contribute more than your allowable TFSA contribution room at any time during the year in which you made a withdrawal, you will be considered to have over-contributed and will incur tax penalties.
TFSA investments are generally the same as those available for RRSPs; including mutual funds, guaranteed investment certificates (GICs), securities listed on a designated stock exchange, and government or corporate bonds.
Withdrawals from a TFSA do not affect eligibility for income-tested benefits such as Old Age Security (OAS).
A tax-free savings account can be a good choice for both short- and long-term financial goals building emergency funds, saving for everything from a new car to a dream vacation or a down payment on a new home, saving taxes on your non-registered investments, and adding to your retirement savings. A TFSA works best for you when you work with your professional adviser to make it a vital element in your overall financial plan.
This column, written and published by Investors Group Financial Services Inc., presents general information only and is not a solicitation to buy or sell any investments. For more information on this topic please contact Audrey Dakin at 519-686-7400 ext. 238. Twitter.com/audreydakin.