Tax Free Savings Accounts
Effective January 1, 2009, Canadian residents (age 18+) have been able to contribute annually to a Tax Free Savings Account (TFSA).
A TFSA allows you to invest and save up to $6000 a year without paying tax on any earnings that may accrue. The income earned on the amount contributed is tax-free, even when it is withdrawn. A TFSA can be used to enhance your overall financial plan and help you to save for both long and short term goals.
A Tax Free Savings Account is a sensible savings tool for everybody. Anyone who is earning taxable interest in a standard savings account can turn it into tax-free interest with a TFSA.
A TFSA is especially well suited to:
- Those who has maximized the Registered Retirement Savings Plan (RSP) contributions and want additional latitude for tax-advantaged savings.
- Those who want access to tax-free savings prior to retirement. Unlike an RSP, you can withdraw funds from the TFSA at any time without tax consequences. If you have already maximized your annual TFSA contribution, you must wait until the following year before contributing anything further to avoid penalty charges from the Canada Revenue Agency (CRA).
- Seniors worried that investment income could have a negative impact on government benefits of tax credits that are reduced or eliminated at higher income levels. These include Old Age Security benefits, the Guaranteed Income Supplement and the federal age credit. Withdrawals from a TFSA have no impact on eligibility for these “income-tested” benefits.