T.F.S.A
TAX-FREE SAVINGS ACCOUNT
Are you aware that investments are tax-free and that there is no tax on TFSA withdrawals?
Whether you are a flexibility seeker, a low-income investor, have maximized your RRSP or a Senior who no longer can contribute into an RRSP, investing in a TFSA is a great option.
The flexibility of withdrawing savings for certain unplanned expenses, can be buying a car or travelling to a preferred destination, the TFSA is an investment of choice.
The low-income investors who falls in a lower tax bracket, may start saving in a TFSA and thus accumulating enough to contribute into an RRSP in the later years when their income grows and their need to save tax is bigger.
RRSP maximizers may find an investment vehicle in the TFSA that allows them to save more in a registered savings plan.
The TFSA with no age limit is useful for seniors who can no longer make RRSP contributions or who want to invest excess RRIFs in a registered investment.
The question of choosing between R.R.S.P or T.F.S.A is faced by the investors and the Planners as well. It is not easy to choose it as ‘either’ or ‘rather.’ Careful planning and understanding of both these products and the requirements and resources available for the investor can help look in for a balanced solution.
The Canadians who have attained age 18 and has a valid social insurance number are eligible to open Tax-free account. There is no maximum age by which the T.F.S.A must be closed. The funds can remain in the account throughout the account holder’s life or can be withdrawn and used for any purpose at any time.
T.F.S.A. Contribution room is calculated as:
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The TFSA dollar limit for the year (i.e. currently $5,500) plus
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Unused contribution room from previous years plus
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Eligible withdrawals (i.e., excludes qualifying transfers) made from the T.F.S.A in the previous year.
The growth in a T.F.S.A is not taxable under normal circumstances. But there are some situations where a tax liability may be incurred, such as an excess contribution made on the account, non-resident Canadians contribute, or ineligible investments held in the T.F.S.A account.
Funds can be withdrawn from a T.F.S.A. At any time and for any purpose, and withdrawals will typically not trigger tax implications.
The amount of eligible withdrawals made from an account in a given year is added back to the holder’s contribution room at the beginning of the following year.
With a T.F.S.A, neither income earned within the account, nor withdrawals from the account typically carry any tax implications. Consequently, withdrawals can generally be made without concern.
Benefits of opening a T.F.S.A.:
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Funds for the rainy days: The flexibility to withdraw as when and as much in the account without triggering taxes makes it an investment of choice.
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Supplement and an alternative investment strategy: People who maxed out their contribution limits in R.R.S.P.’s can further invest in T.F.S.A to get tax free growth on their money. And the individuals falling in low-income tax brackets can look for investing in T.F.S.A tax-free growth as an alternative to R.R.S.P.
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Help parents save extra for a child’s higher education: The rising cost of higher education may not be sufficiently met through savings in R.E.S.P. The T.F.S.A is another tool for the parents to save and grow their money tax-free. They can use this money to fund their children’s education as it’s convenient for them to take out the money as much and as when they may need it.
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One-stop Shop: From saving for a car, funding children’s higher education, spending on vacations, planning to buy a house, saving for retirement, or passing on as a legacy, T.F.S.A can be used as a multi-purpose saving platform.
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Contribution to Spousal T.F.S.A: The T.F.S.A cannot be set up as a spousal plan; however, contributions can be made to the T.F.S.A of a spouse without income attribution implications.
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Loan: The T.F.S.A can be used as collateral for a loan.