Tax-Free Savings Account
A tax-free savings account (TFSA) provides a safe and tax-free place to save for the future. The two primary advantages of TFSA are: first, you won’t have to pay taxes on the growth of your TFSA contributions, and second, neither your contributions nor your withdrawals will be subject to taxation. This makes a TFSA an attractive option to government-sponsored plans with more stringent withdrawal and tax regulations, such as a RRSP or RESP.
How Does TFSA Work?
An individual must be at least 18 in Canada to open a TFSA. The adaptability of this means they may serve several functions. To maximize their savings potential, some people put money into their TFSA.
Guaranteed investment certificates (gas) can be used with tax-free investment accounts (tests) to provide stable, tax-free growth of investments. The interest rate on a TFSA is typically more significant than the rate on a standard savings account, so your money will grow faster and safer in this setting.
But don’t think your TFSA is limited to cash savings just because of the name. Many individuals utilize their tests to put money into stocks, bonds, or mutual funds, all of which are suitable investments. This is a clever strategy for accumulating investment income free of tax liability.
You can deposit up to $10,000 each year into your TFSA (although that number is expected to drop to $5,500 shortly) for a maximum of $41,000. You can increase your contribution limit for the following year if you make less than the maximum yearly contribution this year. In contrast to an RRSP, contributions to a TFSA can be made whenever you please, so long as you don’t exceed the yearly restrictions. If your contributions don’t exceed the annual limit, you may keep your TFSA open for as long as you choose. However, RRSPs must be closed after the account user reaches age 71, so this is another difference.
Additional TFSA regulations include those about international taxes and transfers between accounts of various kinds. Have a burning curiosity? What you can and cannot do with a TFSA is something our financial experts can explain in detail.
Do you want up-to-date details about TFSA-qualifying investments? Need help with whether or not to open a tax-free savings account or a retirement savings plan? Do you want to know how to maximize the benefits of your Tax-Free Savings Account? Get in touch with JBF Financial now for advice on any of the above and more!