How A TFSA Could Be The Right Choice For You
Whether you are saving for the short-term or long-term, having a TFSA could be the option for you.
How Does It Work?
You must be a Canadian resident, 18 and up and have your own Social Insurance Number. You can save up to $6,000 a year, and the amount you can withdraw is added to your contribution room for the next year. Eligible investments for TFSA’s would include cash, segregated and mutual funds, guaranteed deposits and finally stocks and bonds.
Benefits and Features of a TFSA
The most obvious benefit here is the tax-free growth. Meaning you never pay taxes on interest, dividends or capital gains from your investment. Let’s say you save $5,500 per year for over 20 years, that could mean as much as $39,068 in additional funds in your pocket.
Withdrawals Are Tax-Free
The wonderful thing about having a TFSA is you can withdraw money any time and it’s tax-free. The amount you withdraw is added to the contribution room for the next year. Removing money doesn’t affect your eligibility for the following Federal income-tests benefits: Old Age Security, Guaranteed Income Supplement, Canada Child Tax Credit or GST Credit.
Benefits of a TFSA vs an RRSP
Both of these plans will allow your savings to grow tax-sheltered. However, with the TFSA, your withdrawals are always tax-free, yet you don’t get a tax deduction when you contribute. Whereas with the RRSP, you do get a tax deduction when you contribute, and you pay tax on a withdrawal should you be able to do so.