You are ready to start investing and you are thinking about opening a TFSA. In this article we will review the pro’s and con’s to the TFSA as well as the differences between a TFSA and an RRSP. We’ll also let you know how to make a withdrawal from a TFSA and how to take those initial steps to opening one.
What is a TFSA?
TFSA stands for Tax-Free Savings Account. It was created in January of 2009 to help Canadians save for different purposes throughout their lives. Many believe it is one of the most important personal savings accounts for Canadians since the introduction of RRSPs. Some would even argue it is more important.
You may start contributing to your TFSA at any time. It may hold any combination of eligible investments including bonds, stocks, cash, seg funds and mutual funds.The growth of these funds is then tax-free.
Difference Between a TFSA and an RRSP
An RRSP is a vehicle meant to save for retirement with tax-deductible contributions. Upon withdrawal the funds are taxable. Tax Free Savings Account contributions are not tax deductible and may be used for medium to long term savings goals such as a car, house, wedding or other items you are interested in. It can even be considered an emergency fund for some. The compound interest is tax-free.
Benefits
- Tax free compounded interest
- Regardless of your income the contribution room remains the same
- There is no tax upon your death so you can transfer it to your beneficiary tax free
- Withdrawals won’t affect benefits from the government of Canada
- There is no mandatory age to withdraw from it like there is for an RRSP
- You can utilize a TFSA to reach personal goals like buying a house or paying cash for a car
How to Open and Invest in a TFSA
Opening a TFSA is simple with the help of one of our Expert Associates. We recommend you speak with an Experior Financial Group Associate to help you determine if a TFSA is the best option for you. They will make sure you know the contribution limits so that you do not over contribute. As well they can do a Financial Needs Analysis for you to ensure you are getting the best investment advice for your unique financial situation.
What Happens if I Over Contribute?
It’s definitely something you will want to avoid. If you do happen to over contribute the government will charge 1% per month starting from the month you over contributed for the amount of the over contribution until you withdraw it
When Can I Withdraw Money From My Tax Free Savings Account?
You can withdraw funds at any time. There is no limit on the amount you can withdraw. You can use that investment income in any way you deem fit.
What Rate of Return Can I Expect to Receive?
If you speak to an Experior Financial Group Associate we can help find you the best performing TFSA accounts to match your risk tolerances. Our Associates work with many companies so they can find you the best account to match your needs and goals.
What is the Contribution Limit For a TFSA in 2022?
The maximum lifetime contribution limit for 2022 is $81,500 plus growth. The TFSA contribution limit for 2022 is Six thousand dollars.
If you pull money out for any reason, you can re-invest the money when you are ready. This is a great feature of this investment vehicle.
Is a Tax-Free Savings Account Worth Having?
As a resident of Canada it is a valuable investment tool. As a TFSA holder the investment you put into it grows tax free with no capital gains taxes. Though these contributions are not tax deductible, the benefits from the government are a great way to meet your savings goals no matter how large or small they may be. Make sure you know your contribution limits and work hard to meet your goal each year. We recommend that you speak with one of our experts before making decisions about how to invest your money.
