One of the simplest ways to save some money on the side is by opening a Tax-Free Savings Account (TFSA). We’ll help you make sense of it all!
1. WHAT IS A TFSA?
The TFSA is a Canadian savings account created in 2009. With a TFSA, you don’t pay tax on investment income and capital gains. Oh, and withdrawals are tax-free too!
2. SHOULD I INVEST USING A TFSA OR RRSP?
A TFSA is a good account for saving for short-to-medium term purchases, like a downpayment on a car, a new television, or a trip. Your RRSP is for long-term retirement savings. But if you’ve already maxed out your RRSP contribution, contributing to your TFSA can be better than investing in a non-registered account, giving you a break on the tax you pay.
3. HOW MUCH CAN I CONTRIBUTE TO MY TFSA?
You can contribute $6,000 in 2019. If you’ve never contributed before and were 18 or older when the TFSA was started, your maximum contribution is $63,500. Check out the Canada Revenue Agency website for the full TFSA contribution schedule.
4. WHEN CAN I START SAVING WITH A TFSA?
If you’re a resident of Canada, you’re welcome to open a TFSA as soon as you turn 18 years old. Annual contribution room starts accumulating from the second you’re eligible for a TFSA.
5. IF I REMOVE MONEY FROM MY TFSA, DOES MY CONTRIBUTION ROOM INCREASE?
When you make a withdrawal, the amount you withdrew is added back to your contribution room. But be careful! The contribution room isn’t added back until Jan. 1 of the following year.
6. WHAT HAPPENS IF I OVER CONTRIBUTE?
If you go over your contribution limit in a year, the government can tax you 1% of the highest excess amount for every month the excess amount remains in your TFSA.
Do you still have questions about the TFSA? Would you like to open one, or contribute to an account you already have? Schedule a chat with your WealthBar financial adviser today and we’ll find what works best for you.