The Tax-Free Savings Account (TFSA) is a flexible,
registered general-purpose savings vehicle that allows Canadians to earn
tax-free investment income to more easily meet lifetime savings needs. The TFSA
could be best described as a Tax Free Investment Account because you can invest
in stocks, term deposits, and mutual funds as well as applicable savings
accounts.
The TFSA was started in 2009 allowing an investment of up to
$5,000 per Canadian who is 18 years old or older. The $5,000 amount is cumulative, meaning that
if you haven't invested in a TFSA before, as of 2011 you could invest up to
$15,000 ($5,000 for each investible year).
In January, 2012 you will be able to invest up to $20,000.
How the Tax-Free Savings Account Work:
- Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
- Investment income earned and capital gains in a TFSA are tax-free.
- Withdrawals from a TFSA are tax-free.
- Unused TFSA contribution room is carried forward and accumulates in future years.
- Full amount of withdrawals can be put back into the TFSA in future years.
- A withdrawal does not decrease the maximum amount that can be invested in a TFSA, but the TFSA reinvestment must wait until the next calendar year.
- Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs/Term Deposits) and bonds.
- Contributions are not tax-deductible.
- Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
- Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
- TFSA assets can generally be transferred to a spouse or common-law partner upon death.
- Similar to RRSPs, TFSAs can be transferred from one financial institution to another, usually with some fees involved to cover the paperwork required by the Canada Revenue Agency.
The TFSA has many great benefits. To get the most out of your TFSA, make sure
you talk to an investment professional.
Jerry
I wish I could set up TFSAs for my kids before 18 years old. I'd love to watch it grow from the time they were born until they hit retirement. Just $1,000 per year in something that grows or pays dividends.
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