According to Statistics Canada, the Canadian population is evidently aging. With the 50 to 54 age group being the highest in number, it goes without saying that perhaps most of us are concerned about building a solid RRSP for retirement. But let’s not forget the option of investing in a tax-free savings account is here!
The tax-free savings account is definitely not something to pass up or dismiss; beginning in 2009, the TFSA (tax-free savings account) program purposes as a special vehicle for anyone (over the age of 18) who wishes to save long-term, perhaps for a major expense. In pompous terms, “It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime” (Canada Revenue Agency).
Some things you should know before opening a TFSA with your local branch include the fact that, as in investor, you can contribute a maximum of $5500 per year; the beauty in this, is that you can withdraw this money at any time, although investing your money long-term logically would reap for more favourable results, as this would allow time for your investment to compound and grow. What is equally as important to note, is that a TSFA allows you to invest your money into GICs, bonds, stocks, mutual funds, etc., among many other options, thus making your TFSA not just a mere savings account.
If you are eligible to start a TFSA, then there is no age limit at which you must stop contributing, unlike RRSPs; you can invest even after the age of 71 (meaning, even if you’re a retiree boating somewhere off the coast of Morocco, as in investor you can still collect interest, generate dividends or capital gain, income-tax free). Contributions made to your TFSA are not deductible for income tax purposes, unlike RRSPs.
As aforementioned, you can withdraw your money at any time and without any sort of penalty, however the withdrawals will be added to your account contribution room at the beginning of the following calendar year. You can replace the amount of the withdrawal in the same year, provided you have enough room in your TFSA limit. Going over the $5500 limit, will, however, result in you being taxed 1% of the highest excess TFSA amount that month, and for each month that your contribution exceeds the limit. The withdrawals do not affect any governmental benefits or assistance programs, which means that low-income earners can also generate tax-free income without it affecting any support they might be receiving.
Sounds too good to be true, doesn’t it? Well more and more Canadians are beginning to seize this opportunity as TFSAs are growing in popularity. A TFSA is an alternative not to lose sight of; why not consider investing your money, headache-free? Not to mention the fact that your TFSA becomes transferable to a spouse or common-law partner upon death, as morbid as that thought is. There is definitely something reassuring in knowing that our hard-earned money will not be taxed upon choosing to safely invest in a TFSA, regardless of whatever happens to us in this crazy world we live in.