Tax-Free Savings Accounts (TFSAs) should be on your personal savings radar. Since they were first introduced by the federal government in 2009, TFSAs have been recognized as a great vehicle for tax-free savings growth. While every Canadian resident over the age of 18 is eligible to open one, there are a few things everyone should know about how these accounts work before choosing to save using a TFSA.
The annual TFSA contribution limit is indexed to inflation in $500 increments. In 2013, the Canada Revenue Agency increased the limit to $5,500, which remains the same for 2015. You’ll maximize the value of your TFSA by making the most of all available contribution room, but even if you don’t use all your contribution room every year, it accumulates year after year, so you can use it in the future.
If you have never had a TFSA account and have been a Canadian resident and 18 years of age since 2009, you will have $31,000 in unused TFSA contribution room. If you already have a TFSA account, your 2015 TFSA annual contribution room is calculated by taking the annual dollar limit for 2015 of $5,500.00 plus the amount of withdrawals from 2014 (excluding withdrawals of excess contributions, qualifying transfers or other specified contributions), plus any unused contribution room from 2014.
If you make a withdrawal, the earliest you can ‘earn back’ your TFSA contribution room is the first day of the year after the TFSA withdrawal was made. If you contribute more than your allowable TFSA contribution room at any time during the year in which you made a withdrawal, you will be considered to have ‘over-contributed’ and will incur tax penalties.
TFSA investments are generally the same as those available for RRSPs, including mutual funds, Guaranteed Investment Certificates (GICs), securities listed on a designated stock exchange and government or corporate bonds. They can be a good choice for both short and long term financial goals – providing a ready source of emergency funds, a good way to save for everything from a new car to a dream vacation or a down payment on a new home, saving taxes on your non-registered investments, and adding to your retirement savings. A TFSA works best for you when you work with your professional adviser to make it a vital element in your overall financial plan.
This column, written by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances.