What is a TFSA?

Savings

A TFSA is a Tax Free Savings Account that is exempt from taxes. Now from a Canadian perspective we always feel there is a catch somewhere. When is it taxed? Never. This is a new concept here in Canada and we have to give our heads a shake to believe it to be true.

First the money going into the plan is not tax deductable or a tax break. It is already tax paid monies put into an account. That account can be invested in anything that is approved for RRSP. Investments like GIC’s, Bonds, Stocks, or Mutual Funds and Segregated Funds are available as long as they meet the list of approved investments. So a high interest account is not the only thing for the TFSA. The earnings grow and are exempt from tax. So if you withdraw from the plan there isn't a tax bill to follow.

How to best apply the TFSA? That depends on your situation. A rule of thumb would be to use it for any savings of a year or more. It may be better to use it instead of an RRSP if that suits you better or in combination with an RRSP for retirement savings. The nice thing about the TFSA is you have better access to it than an RRSP without the tax consequences an RRSP can attract.

The TFSA should be where most if not all your non-registered savings should be but remember that there is a $5,000 limit to your contributions each year. Also note that if you needed the funds you could later put them back in after the next January 1st of the following year or up to the maximum contribution room left for the current year.
There are many aspects to consider how a TFSA can benefit you the most. It mostly depends on your unique situation and what goals you are looking to achieve. A financial planner can steer you through all the rules to get the most of your money and give the least to the government.

If you have any questions, comments, or suggestions for future articles please email.

Jonathan Taylor
Chartered Financial Planner

6851 Morrison Street
Niagara Falls, Ontario  L2E 2G5
905-374-9550 or 1-877-325-7677