Why You Should Consider a Tax-Free Savings Account (TFSA)
The Tax-Free Savings Account, or TFSA, is a flexible, general purpose savings vehicle where interest (and income) earned is protected from taxation, even when withdrawn. This means more of your money at work to help you reach your savings goals--be it a home renovation, your children's education, a happy retirement, or to simply save. A TFSA is also an effective option for those who have maximized their RRSP or want to reinvest money from their RRIF.
How the TFSA Works
- Any Canadian resident aged 18 and older with a Social Insurance Number can open a TFSA, regardless if they have earned income or not.
- The annual TFSA contribution limit is currently set at $5,500. Unused contribution room can be carried forward, meaning if you have yet to take advantage of a TFSA there are thousands of dollars in cumulative contribution room available to you.
- As of 2016, the annual TFSA contribution limit is $5,500
- Interest & income earned in your TFSA are not subject to taxation--neither while in the TFSA nor when withdrawn
- TFSA contributions are not tax deductible
- There is no deadline to make a TFSA contribution
- You can hold multiple TFSAs but have only one contribution room total
Important Information on TFSA withdrawals
Every year, thousands of Canadians get caught with a TFSA penalty due to an incorrect understanding of the withdrawal rules. It's important to know that:
- You can withdraw from your TFSA, depending on the type of investments held within your plan
- Except for qualifying transfers (transfers between your own TFSAs), withdrawals made from your TFSA can only be added back the following year
To avoid a TFSA Penalty:
-If you make a TFSA withdrawal after having maximized your total TFSA contribution limit, re-adding the withdrawn funds in the same calendar year will be considered an over-contribution, which is subject to a penalty.
-A simple way to avoid a penalty under these circumstances is to replace the funds in the following calendar year. This will allow you to take advantage of your new contribution limit (remember again to only re-contribute what the following year's limit will allow. Anything more will be considered an over-contribution).
For a better understanding on TFSA withdrawal implications, have a look at the two withdrawal scenarios the CRA has provided on its website.
Unsure of how much TFSA contribution room you have?
Knowing how much you can contribute is an important first step in avoiding a TFSA penalty. For the most up-to-date information on your TFSA contribution room, access the "My Account" feature on the CRA website (click HERE to access) or by calling the CRA Tax Information Phone Service at 1.800.267.6999.
Ready to open your own TFSA or want to learn more? Here are your options:
- Visit your nearest branch or
- get the process started by phoning our Relationship Centre at 1.888.741.1010, 8 am - 8 pm Monday to Friday and Saturdays from 8:30 am to 4 pm.
To learn more, check out our Frequently Asked Questions about the TFSA, see our Tax-Free Savings Account Brochure, or schedule an appointment with a Coastal Community Private Wealth GroupTM Wealth Advisor near you.