Financially Speaking

The federal government introduced the Tax-Free Savings Account (TFSA) in 2009 and it was hailed as the single most important personal savings vehicle since RRSPs were launched in the late 1950’s. So it’s easy to understand that in just a few years a TFSA has become a go-to savings option for many thousands of Canadians. Tax-free savings growth and easy, tax-free withdrawals at any time for any purpose – sounds great and it is … especially when you take full advantage of all your TFSA benefits. To get the best upside from your TFSA, let’s look inside it.

• Every Canadian over 18 years of age is eligible to save in a TFSA.
• Contributions to investments held within a TFSA are not tax deductible but they do grow on a tax-free basis.
• The annual TFSA dollar limit is indexed to inflation in $500 increments and in 2013, the limit was increased to $5,500, where it remains for 2014, and is expected to do so for the foreseeable future.
• You’ll maximize the value of your investments held within a TFSA by making the most of all available contribution room. But even if you don’t use all of your contributions room every year, it will accumulate year after year, so that it can be used in the future.
• If you have never had a TFSA account, you may have up to $25,500 in unused TFSA contribution room.
• If you already have a TFSA account, your 2014 TFSA annual contribution room is calculated this way:
• The annual dollar limit for 2014 of $5,500.00.
• Plus the amount of withdrawals from 2013 (excluding withdrawals of excess contributions, qualifying transfers, or other specified contributions).
• Plus any unused contribution room from previous years.
• If you make a withdrawal, the earliest you can ‘earn back’ your TFSA contribution room is the first day of the next year after the TFSA withdrawal was made.
• TFSA investments are the same as those available for RRSPs, including mutual funds, money market funds, Guaranteed Investment Certificates (GICs), publicly traded securities, and government or corporate bonds.
• Contributions to investments held in a TFSA do not affect RRSP contribution room.
• TFSA withdrawals do not affect eligibility for income-tested benefits such as Old Age Security (OAS).
• A TFSA can be a good choice for both short and long term financial goals – providing a ready source of emergency funds, a good way to save for everything from a new car to a down payment on a new home, adding to your retirement savings, and even splitting income with your spouse to minimize taxes.

To be sure you’re getting the most from your TFSA – and from every other element in your overall financial plan – talk to your professional advisor.