TFSA – Tax Free Savings Accounts

TFSA – Tax Free Savings Accounts

Finally, genuine tax relief on a savings product! Canadian residents 18 or older can register for this tax-free product – the Tax Free Savings Account. So how does it work?

Starting in January 2009, you can register for a TFSA. You may contribute up to a maximum of $5,000 per year to your TFSA. Starting in 2013, this amount has increased to $5,500 per year and the interest inside the product grows tax-free! This is a great product to help you with long-term savings programs. You can contribute or withdrawal money as often as you wish. No penalties on the withdrawal either, so long as your total contributions do not exceed the allowable contribution space in a given year.

Advantages – unlike unregistered savings accounts, or RRSP’s for that matter, money contributed with a TFSA do not tax you, now or ever, on the interest gained within your TFSA product. This means compound interest in a TFSA will grow much faster because it will never be eroded by taxation.

Disadvantages – don’t over contribute to your TFSA – you will be taxed on it. Check with your financial advisor for more details.

The cool part of this product is this – the space in your tax-free savings account opens up to the maximum contributable amount (if you withdraw everything out of it).

Note to reader: When you withdraw funds from your TFSA the “space opened” from that withdrawal does not become available to be replaced until the following calendar year!

This means you can use a TFSA for things like:

Using it as part of a down-payment when buying a home

Going on a trip

Buying big-ticket items

Saving for retirement (this is my favorite)

And the list goes on….

See your financial advisor to find out how a TFSA can be a part of your overall savings strategy.

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