One of the most intriguing financial tools offered in recent years is the Tax-Free Savings Account (TFSA). If you aren’t taking advantage of the opportunities allowed by the TFSA, you could be missing out on opportunities to grow your wealth in a tax-advantaged manner.
The TFSA offers you the chance to improve your financial situation, and get ready for the future. As you consider your financial situation, don’t forget to include the TFSA in your calculations. It joins the ranks of the RRSP and other non-registered investment accounts as tools in your financial tool belt.
TFSA: The Basics
The TFSA is a relatively new type of account. The Canadian Revenue Agency introduced the TFSA as a way to help consumers accumulate tax-free savings, and enjoy tax-free earnings. Residents of Canada, who are at least 18, can put up to $5,000 a year into a TFSA. Withdrawals are also tax free, and you can carry forward contribution room to future years. One of the great things about the TFSA is that you can choose from a number of investments for your account:
- Mutual funds
You should realize, though, that contributions to a TFSA are not tax-deductible. But, since your investment earnings aren’t taxed, and you don’t have to pay taxes when you withdraw, that’s usually not such a hardship in the long run, especially if you think taxes will go up. Plus, what happens with your TFSA doesn’t affect your eligibility for federal income-tested benefits and credits. That means you don’t have to worry about losing out on some of your future benefits because of what you invest in your TFSA.
What’s great about the TFSA is that it can complement your other investment accounts. You can use it in conjunction with your RRSP, and with your RESP. That way, you can develop a complete portfolio and balance the investments in your various accounts. A TFSA should be a part of your overall financial plan. You need a way to improve your situation, and you should be saving up for the future. That way, you can coordinate efforts across accounts.
Remember to carefully consider which investments you want to include in your TFSA, and also consider how the TFSA fits in with your other investment accounts. All of your investments can result in loss, so an overall strategy can help you make better decisions for the future — and hopefully build the wealth you need for financial success.