Have you heard of tax-free savings accounts? You might not have. If you did know about tax-free savings
accounts, do you really know what it is? If you are like most, you don’t truly comprehend what this is. That
is why we are going to break it down for you and discuss how it can help you build wealth.
Otherwise known as a TFSA, the tax-free savings account allows you to grow your capital investment
without worrying about being taxed when you decide to later withdraw the money. You will not be able
to deduct the contributions you made to a TFSA for income tax purposes.
How it works
To open a TFSA, you need only be 18 years of age and have a social insurance number. You can have as
many TFSA accounts as you want, but you must respect the allowed contribution limit. Every year at
income tax time, you will receive the amount you are allowed to invest in your TFSA. In 2019, the limit is
6000$ for this current year, but your allowed limit has been accumulating since you are 18 so you could
be allowed to contribute much more (if you have the money of course!)
Where do you go exactly to get this type of account? A panoply of options are available: banks,
insurance companies, credit unions and trust companies can all offer this type of account.
Types of TFSAs
There are different types of TFSAs: deposit, annuity contract and arrangement in trust. Your TFSA
contribution can be invested in the same ways as your registered retirement savings plan (RRSP). The
types of investments permitted are: cash, mutual funds, securities, guaranteed investment certificates
and bonds. But unlike your registered retirement savings plan (RRSP), your tax-free savings account
(TFSA) does allow you to withdraw your money at any time without having to pay income tax on the
amount withdrawn.
The breakdown
Once you start planning for the long term, be it a project or your retirement, TFSAs are useful accounts
to have. You can put money aside while knowing that you have the flexibility of withdrawing it at any
time without hassle (depending on where you have invested it) and tax-free. Because its available
through a variety of institutions, getting one is simple and easy. Ask for a sit-down with someone from
your financial institution to get more information.