Everyone needs a break at times especially a tax break so you get to save more cash. The Tax-Free Savings Account (TFSA) was launched in January 2009 which helps you grow interest while eliminating taxes. As compared to a regular savings account, a TFSA helps you save without the burden of taxes. So, the interest accrued on your account is non-taxable or tax-free. You are also free to withdraw or transfer your money from TFSA without paying any taxes. Yes, this is practically tax-free for life.
There are tax deductions too with a regular saving account or a Registered Retirement Savings Plan (RRSP) there are fees when you decide to take it out or withdraw it.
Who is eligible for a TFSA?
- Must be at least 18 years old;
- Has a valid Social Insurance Number (SIN)
- Resident of Canada (for purposes of tax payments)
Features of TFSA:
- Forever tax-free. Yes, we can’t stress any further. Your investments are tax-free which can include mortgages, mutual funds, to GICs.
- Make multiple investments. When buying investments, you can do cash deposits or transferring shares in stocks or mutual funds. Types of investments allowed in TFSA are the following: bonds, securities, cash, mutual funds, guaranteed investment certificates, and business shares. You can also contribute foreign or international funds to your TFSA but this will be converted to Canadian dollars upon transfer.
- Don’t make double payments. You are only allowed to contribute a total of $5,000 annually then you can carry forward some portion for the following year. Some Canadians though find this confusing and then tend to over-contribute. If you make the mistake of sending double payments, then you would be charged with tax penalties.
- Unused contributions can be carried forward. There is a yearly limit of $5,000, which means that the unused contribution can be carried forward to the next year
- No age limit. Yes, you can make contributions at any age with TFSA. RRSP, on the other hand, require depositors to stop adding more funds by age 71.
- You get to maximize savings. The flexibility of adding up savings in line with the $5,000 maximum allows you to reinvest the same amount the next year to enjoy tax-free savings. Don’t reinvest on the same year especially when the monthly limit is reached.
- Use the compounding power. With tax-free savings, you can build your wealth by saving a few dollars plus the interest monthly and then watch your interest grow.
- Available to Canadian residents only. This does not apply to non-residents of Canada.
- Gift someone with a TSFA. This is a perfect gift for a loved one like a spouse because they can also be beneficiaries of the plan in the event of death.
If you are looking for a solid and bankable investment that also forms your savings account, then this is the best instrument for you especially if you are a Canadian resident. Enjoying tax-free savings can help you speed up your personal economic growth while also contributing to the society in general.