What Is a TFSA? A Guide to Tax-Free Growth and Financial Flexibility

The Tax-Free Savings Account (TFSA) is a registered account designed to encourage people to save for retirement and other goals. You’re eligible to start contributing as soon as you turn 18. There is no limit on how long you keep your account open.

What’s in it for me?

This account can hold a variety of investments – GICs, mutual funds, ETFs, stocks, bonds, etc. The big difference is that the money you put into your TFSA is ‘after-tax income.’ In other words, you will pay income tax on those dollars before you deposit them into your account. But withdrawals are not taxed as income. That includes any investment gains you make within the TFSA.

How much can I contribute to my TFSA?

Rules apply to how much you can contribute each year and what happens when you don’t contribute the maximum amount you are allowed.

• Yearly amount: This amount changes from year-to-year and maximum annual contributions can change each year.
• Carry forward: You can carry forward any unused contribution room to future years to top up the yearly amount. If you withdraw money at any time, the withdrawal amount is added back to how much you can contribute the next year.

This makes the TFSA an excellent vehicle to fund larger expenditures, like a car or house, or to serve as an emergency fund. It’s also a good vehicle for retirement savings, particularly if you have used up your RRSP contribution room.

Tips for retirees

If you have unused contribution room in your TFSA and do not require all your mandatory annual Registered Retirement Income Fund (RRIF) withdrawals for immediate living expenses, you may want to consider reinvesting the excess funds from your RRIF withdrawals in your TFSA, where they can continue to enjoy tax-sheltered growth. There are no minimum withdrawals with your TFSA.

The fact that the money you take out of your TFSA isn’t considered taxable income may be more important for retirees. It means you can take money out without it affecting other benefits (like Old Age Security) that are based on income.

To discuss your TFSA, I can be reached at 604 981 2306.

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