5 Reasons to buy a TFSA
A tax free savings account (TFSA) is a type of registered account that allows you to save and invest money without paying taxes on the income or growth you earn inside it. Whether you are saving for a short-term goal like a vacation or a long-term goal like retirement, a TFSA can help you achieve your financial objectives faster and easier.
Five benefits of opening and using a TFSA
- Tax-free growth: Unlike other types of accounts, such as savings accounts or non-registered investment accounts, you don't have to pay any taxes on the interest, dividends, or capital gains that your TFSA generates. This means that your money can grow faster and compound more over time.
- Tax-free withdrawals: Another benefit of a TFSA is that you can withdraw your money at any time and for any purpose without paying any taxes or penalties. This gives you more flexibility and access to your funds than other types of registered accounts, such as RRSPs or RESPs, which have specific rules and restrictions on when and how much you can withdraw. You can use your TFSA to fund your education, buy a home, start a business, travel the world, or whatever else you want.
- Contribution room carryover: The amount that you can contribute to your TFSA each year is limited by your contribution room. Your contribution room is based on your age (you must be 18 or older), your residency status (you must be a Canadian resident), and an annual limit set by the government (for 2023 it is $6,500). However, if you don't use up all of your contribution room in one year, you can carry it over to future years indefinitely. This means that if you have unused contribution room from previous years since 2009 (when TFSAs were introduced), you can add it to your current year's limit and contribute more than $6,500.
- Wide range of investment options: A TFSA is not just a savings account; it can also be an investment account that can hold various types of qualified investments, such as mutual funds. This gives you more choice and control over how you want to invest your money and diversify your portfolio. You can also transfer existing investments from other accounts into your TFSA without triggering any taxes.
- No impact on government benefits: One more benefit of a TFSA is that it does not affect your eligibility for income-tested government benefits and credits, such as Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Child Benefit (CCB), Goods and Services Tax/Harmonized Sales Tax Credit (GST/HST Credit), etc. This is because neither the income earned inside your TFSA nor the withdrawals from it are considered taxable income by the Canada Revenue Agency (CRA). This means that having a TFSA will not reduce or eliminate these benefits that may help supplement your income.
A TFSA is a powerful tool that can help you save and grow your money tax-free for any purpose. If you are interested in opening a TFSA, contact your Wealthforce professional to get the process started.
You can also visit www.canada.ca/tfsa for more information about TFSAs.