With tax season upon us, we thought it'd be a good time to revisit a TFSA Advantages blog, originally posted on September 22, 2016!
When looking for a safe, practical way to save your money, there are many advantages to a TFSA. So, what is a TFSA and why should you care about it?
A TFSA is a Tax Free Savings Account that was introduced by Ottawa in January of 2009. The best way to explain a TFSA is to explain what it is not: an RRSP. Unlike an RRSP, the contributions that are made to a TFSA are not tax-deductible. This alone turns many off, as they like the tax deductions. However, with an RRSP you are taxed when you make a withdrawal; that doesn’t happen with a TFSA. It stays true to its definition by really being tax-free all the way around!
So, what’s the catch? Truthfully, there isn’t much. You never pay tax on the money inside your TSFA, so you can invest in interest-bearing options like bond funds or GIC’s, or just aim for generalized growth with traditional stocks. There are some rules for what you can and can’t invest in, and the best course of action is to set up a consultation with a Financial Planner. You are allowed to contribute a maximum of $5000.00 per year into a TFSA. If you go over that, there are taxable penalties. However, the great news is that if you don’t contribute the full $5000.00 one year, the remaining total can be rolled over into a subsequent year. So, if you only contributed $3000.00 in 2014, you can then contribute $7000.00 in 2015. If you need money, go ahead and use it. There’s no penalty for withdrawing funds, and any funds you withdraw in one calendar year can be added to next year’s contribution total, which is another nice bonus. There is also no age limit for contributing to a TFSA, so save to your heart’s content!
Non-residents of Canada are not able to open a TFSA. (Feel the Canadian love!) Also, if you open a TFSA and then leave the country, you are allowed to keep it, but you are not allowed to contribute to it as long as you’re a non-resident. Give Belmont Health & Wealth a call today and speak to an advisor about whether a TFSA is a good fit for your wealth portfolio!