Every so often the government offers us a tax break and 2009 saw one with the introduction of the TFSA, starting with a $5,000 limit. But what exactly is a Tax Free Savings Account (TFSA) really?
The biggest thing to know about the TFSA, is that it isn’t merely a savings account. In fact, it should really be called a Tax Free Investment Account as it allows you to hold stocks, mutual funds, GIC’s and ETF’s – so that your money can grow TAX FREE.
Unlike an RRSP there is no tax deduction when you make a deposit to your TFSA, so you are using after tax dollars. However, when you withdraw money from your TFSA you are not taxed on it as is the case with redemptions from your RRSP.
You never have to pay tax on growth inside your TFSA. So if you own interest bearing investments like Bonds and GIC’s holding them in your TFSA is a great idea.
Let’s take a look at these TFSA facts:
- You can have as many TFSA’s as you like as long as accumulatively they do not exceed the maximum.
- Your balance may exceed the contribution maximum due to growth but not due to contributions.
- To date you could have contributed $57,500 to your TFSA.
- Unused contribution room accumulates
- When you withdraw money from your TFSA you have to wait until the next calendar year to put it back in. The exception would be if you had available contribution room
- There is a 1% per month penalty if you over contribute
- TFSA’s cannot be jointly held
- Available to spouses and common law partners, is the successor holder designation – which allows a spouse to assume a deceased spouse’s TFSA, even if they don’t have the room available.
- TFSA’s can be used as loan collateral
- You’re never too old to open a TFSA but
- You need to be 18 to open one and you only start accumulating contribution room then
- The 2019 TFSA limit was recently increased to $6,000.
So, is a TFSA right for you? Talk to your Certified Financial Planner who will be able to review your unique situation and discuss the options with you.
This column is written by Michelle Weisheit CFP, IG Wealth Management and presents general information only and is not a solicitation to buy or sell any investments. Please contact your own advisor for specific advice about your situation.