TFSA BASICS

A TFSA account allows you to save for your short to long term goals. For example, a vacation, or buying a home on a tax-free basis. Here are the basics of a TFSA to help you navigate this investment account option.

A Tax-Free Savings Account (or TFSA) is a type of investment account that allows you to save and grow your money tax-free.

A TFSA can be opened by any Canadian resident with a Social Insurance Number who has reached the age of majority in their province. You can open more than one account.

Like a registered retirement savings plan (RRSP), a TFSA can hold a wide variety of investments, including mutual funds, exchange-traded funds, stocks, and bonds. Your contributions to a TFSA are not tax-deductible but your savings grow tax free. The withdrawals you make from a TFSA account are also tax free and can be made at any time.

Below are some pros and cons to consider when you are thinking of using an TFSA account for your investment:

Pros:

  • The main benefit of a TFSA account is that your investments inside the account grow tax free. In other words – the income and growth of the investment are not taxed.
  • TFSAs offer flexibility and can be used to save for any financial goal, especially in the shorter term. Unlike with an RRSP, you don’t have to pay taxes on withdrawals, and you can also recontribute any withdrawals the following year.
  • If you don’t contribute the maximum amount allowed in a year, any unused contribution room is carried forward for future years.

Cons:

  • Your contributions to a TFSA are not tax deductible, so you won’t receive an immediate tax benefit.
  • If you withdraw from your TFSA, the amount of the withdrawal is added to your unused contribution room, but not until the beginning of the following year. That means you will have to wait until the new year before you can recontribute any withdrawals.
  • There is no option for a TFSA spousal plan, although you have the option to give your spouse (or common law partner) money to invest in their own account, without having the income earnings from that money being attributed back to you.

If you are ready to get started, contact us at Jassal and Associates, and we can help you customize an investment plan based on your needs.

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