TFSA

A Tax Free Savings Account (TFSA) lets you grow your savings and access your money tax-free.

Whether you are saving for the short-term or the long-term, a TFSA may be for you.

If you are a Canadian resident, 18 or older and have a Social Insurance Number (SIN), you can open a TFSA.

You can save up to $5,500 a year, and any unused contribution room is carried over indefinitely. The amount you withdraw is added to your contribution room for the following year.

You can open more than one TFSA, but make sure you keep track. The penalty for over-contribution is 1% on the excess amount each month.

Eligible investments for TFSAs include cash, guaranteed deposits, segregated and mutual funds, stocks and bonds.

Tax-free growth
Tax-free growth means you never have to pay taxes on interest, dividends or capital gains from your investments.

For example, if you save $5,500 a year over 20 years, it could mean as much as $39,068 more in your pocket.

Tax-free withdrawals
You can withdraw money from your TFSA at any time, tax-free. And the amount you withdraw is added to your contribution room for the following year.

Withdrawals from a TFSA don’t affect your eligibility for federal income-tested benefits such as Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Child Tax Credit (CCTC), GST Credit, etc.

Flexible investment choices
You have a choice of investments to meet your short and long-term goals:

• Interest investments offer guaranteed interest and term options
• Segregated fund investments offer the growth potential and the benefit guarantees you want

Tax benefits of TFSA vs. RRSP
Both a TFSA and an RRSP let your savings grow tax sheltered. So how are they different?

• With a TFSA, your withdrawals are always tax-free, but you don’t get a tax deduction when you contribute
• With an RRSP, you get a tax deduction when you contribute, but you pay tax when you make withdrawals

Which one works better?

• Generally, you will come out ahead with a TFSA if you are in a higher tax bracket when you make withdrawals
• Generally, you will come out ahead with an RRSP if you are in a higher tax bracket when you make contributions