Tax Free Savings Account (TFSA)

The benefits of TFSA saving has never been more rewarding. Expand/Collapse

There are so many things you can save for by using a TFSA. It might be to renovate your home, buy a cottage, go on a dream vacation or save for your child's wedding. It could even be just to have emergency funds readily available. Introduced by the federal government in 2009 to help Canadians save better, the TFSA gives account holders:

  • The opportunity to earn investment income, tax-free – Any interest, capital gains or dividend income you earn within the account is not subject to tax
  • The flexibility to withdraw your savings, tax-free – At any time and for any purpose you choose
  • The ability to contribute to a spouse’s TFSA – Remember, your total contribution to any account cannot exceed the maximum allowed
  • A wide range of investment options for enhanced flexibility
  • No impact to your government benefits – No income you receive or withdrawals you make from a TFSA will affect your eligibility to receive income-tested benefits such as the Guaranteed Income Supplement, Canada Child Tax Benefit or Old Age Security benefits

TFSAs: The Basics Expand/Collapse

Here is what you need to know:

Eligibility

  • Anyone 18 years of age and over who is a resident of Canada can open a TFSA
  • A valid Social Insurance Number is required to open an account
  • You do not need to have earned income or file an income tax and/or benefit return

Contributions

  • There is a hard cap on what you can contribute to a TSFA each year.  In 2017, the limit is $5,500.
  • Unused contribution room can be carried forward to future years. 
  • There is a lifetime limit on TFSA contributions as well.  If you were eligible to contribute every year that the TFSA program has been available, the lifetime limit for 2017 is $52,000.
  • Any amount withdrawn from a TFSA can be re-contributed in future years without reducing contribution room
  • Spouses (and common-law partners) can give each other money to contribute to their own TFSA as long as it is within the maximum allowed. TFSA assets can be transferred to a spouse tax-free upon death

Withdrawals

  • No tax will be withheld
  • Funds may be withdrawn for any purpose
  • No limit on the amount of each withdrawal

Tax features

  • Account is funded with after-tax dollars
  • Earnings growth in plan is tax-sheltered
  • Withdrawals from the account remain tax-free

Need to know more? Whether you’re new to investing, or a seasoned veteran, it’s always a good idea to get professional advice. So drop into any branch of Weyburn Credit Union and speak to an Investment Specialist who can provide you with an expert’s insight and help you make informed decisions about your TFSA.

To TFSA or to RRSP; that is the Question. Expand/Collapse

You may already use an RRSP to invest for the future. But did you know there’s another option – the Tax-Free Savings Account, or TFSA. It’s a great complement to your RRSP but the challenge is deciding when it’s best to choose a TFSA over an RRSP. Here are some general guidelines.

Want easy and frequent access to your money - use a TFSA. You’ll be able to withdraw funds tax-free at any time and re-contribute the same amount in the future. Keep your RRSP for long-term retirement savings.

Earn a low income - you may benefit more from the tax-free growth and withdrawal flexibility of a TFSA than from the modest tax deduction of an RRSP.

Starting your career - then invest in a TFSA before an RRSP. Over the years you’ll accumulate RRSP contribution room that you can eventually take advantage of when your income is higher and when claiming the RRSP tax deduction has a bigger impact.

Need to borrow money  - a TFSA can be used as loan collateral. Just remember, the interest on money borrowed to invest in a TFSA is not tax deductible.

Saving for a house or education - a TFSA may be a better option than the RRSP’s Home Buyers Plan or Life Long Learning Plan. That’s because TFSA withdrawals don’t have to be paid back, money doesn’t have to be kept in the account for 90 days before withdrawing, and if you decide to use your money for another purpose, you don’t have to pay tax.

Have interest-bearing investments - like GICs, savings accounts or term deposits, which are taxed at higher rates; put them in a TFSA where they are tax sheltered.

Own high risk/high return investments - a TFSA might be better than an RRSP or non-registered account. If your $5K grows to $50K it could be withdrawn tax-free. The downside — you can’t claim a capital loss if your investments lose value.

Hold investments in a non-registered account - consider transferring them ‘in-kind’ to your TFSA so they can grow tax-free. But talk to an expert first because there may be tax consequences.

Have a pension plan at work - and therefore have limited opportunities to contribute to an RRSP, use a TFSA to augment your retirement savings.

Retiring in 10-20 years - use a TFSA to complement your RRSP and grow your nest egg more aggressively.

Making maximum RRSP contributions - put additional savings in a TFSA before a non-registered plan so your money can grow tax-free. 

Need to reduce taxable income in retirement - use a TFSA in addition to your RRSP. After you convert your RRSP into a RRIF at age 71, RRIF withdrawals are taxed, and the more money you withdraw the higher your marginal tax rate. But by also withdrawing tax-free funds from a TFSA you can reduce your RRIF withdrawals, potentially lowering the overall tax you pay.

Don’t need all your RRIF/LIF withdrawal cash - move it to a TFSA where it can grow tax-free until you need them later.

Receiving Old Age Security, the Canada Child Tax Benefit, EI or the GIS - invest in a TFSA to avoid potential claw backs. TFSA interest earned or withdrawals aren’t considered income so won’t affect your benefits.

These are all only generalizations. Your situation is unique. If you want to find out how to use the Tax-Free Savings Accounts to your advantage, drop by any branch of Weyburn Credit Union and talk to one of our Investment Specialists. They can provide you with an expert’s perspective and help you invest in the future with your own Tax-Free Savings Account.

 

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