Do You Understand the Benefit of a TFSA?
Many Canadians still don’t understand the benefits of a TFSA. MoneySense Magazine reported that only 1 in 5 Canadians can truly explain a TFSA.
This acronym stands for Tax Free Savings Account; many of us believe that the government should have more appropriately named it the Tax Free Investment Account. The latter may have made it easier to understand the purpose of this savings vehicle. It is intended to enable Canadians to shelter investment income (dividends, capital gains and interest). Simply parking money in this account, much like a bank account, won’t earn you much, if anything at all.
A TFSA allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned in a TFSA are tax-free. TFSA savings can be withdrawn from your account at any time, and all withdrawals are tax-free. There are limits on annual TFSA contributions which are the same for all taxpayers.
Taxpayers should work with their Tax professional and/or Financial Advisor to determine if a TFSA should be an essential part of tax/retirement planning and whether TFSA contributions should take priority over RRSP contributions.
If you would like a consultation or have questions, please contact us at (403)703-7176 or email us at Sharon@CalgarysChoiceTaxServices.com.
