It's only been two years since the Tax Free Savings Account (TFSA) was first introduced to Canadians. And while most people have opened an account, a few may still be unsure on how to reap all the benefits of this savings tool.
Here's a quick refresher to kick-start your 2011 TFSA savings plan:
- Anyone can have an account—almost: Any Canadian resident over 18 years old can contribute to a TFSA.
- Annual limit: In 2010, the contribution limit for TFSA was $5000. However, if you only invested $2000, you can carry forward $3000 to 2011. That means you can contribute up to $8000 to your TFSA this year.
- Withdraw funds with ease: Unlike an RRSP, a TFSA is a registered savings product that will allow you to make withdraws anytime tax free.
- Tax-free, but also contribution slip-free: Also unlike an RRSP, you will not receive a contribution slip for your investments. The tax savings occurs at the source since you will not be required to pay taxes on earned interest or realized capital gains.
- Invest your money your way: You may decide to simply deposit your money into a savings account. Or you can choose from any of the following:
- Mutual Funds
- Guaranteed Investment Funds or GIFs
- Basically, whatever an RRSP allows you to invest in, the same goes for a TFSA.
- Most importantly, a TFSA makes saving easy: There is no minimum deposit required to open a TFSA. Great news if you want to get serious about paying yourself first. Whether you choose $5 a day or month, any amount you save this year helps you realize a more prosperous future.
Now here are just a few words of caution. If you have fully invested in your TFSA and then withdrawal some money, you will have to wait until next year before making another deposit. Also take note if there are any fees charged by the financial institution when you withdrawal money from the plan.
For more information about the TFSA, contact us now!