TAX FREE SAVINGS ACCOUNT (TFSA)

    The Tax-Free Savings Account (TFSA) has become one of Canada’s best investment options over the past 20 years. TFSA is a flexible and tax-advantaged investment account that allows individuals to save and invest money without paying taxes on the investment income or capital gains generated within the account. The primary purpose of a TFSA is to help Canadians save and invest money for various financial goals, such as retirement, purchasing a home, starting a business, or funding a vacation, without incurring taxes on the investment growth. It serves as a versatile savings vehicle suitable for short-term and long-term objectives.

    With that being said, let’s take a look at what you need to know about TFSA before setting one up.

     Although you can simply put any amount of money in your TFSA and just let it sit there, a TFSA account can be of more and better service to you and your financial goals. The best advantage a TFSA account holds is the tax-free feature it carries. That means, if your money – sitting in your TFSA account – were to gain interest as well, you’d be cashing it out without paying a dime in taxes. Hence, we really believe a TFSA account is better put to use if it held investment vehicles. When we talk about investment vehicles we are referring to things like

    • Stocks
    • Mutual Funds
    • Savings Account
    • Segregated Funds
    • Guaranteed Minimum Withdrawal Benefits

    And the list goes on.

    Did you know you can take any one of those investment vehicles and register them as tax-free savings accounts? Take stocks, for example, let’s say you own apple, Amazon and Tesla. You can set up your account so those are held as a TFSA. The reason you would choose to do this is that it could be tax advantageous for you. Here’s how the taxes work on TFSAs.
    • The money you contribute to a TFSA is considered to be after-tax dollars.
    • Your TFSA grow tax-free
    • When you withdraw from your TFSA it is also tax-free
    If you notice, the money you contribute to TFSA is after-tax dollars. The way the government looks at this is you’ve already paid your “fair share” and now are being encouraged to save for a future date.
    The growth on your account is also tax-free, unlike non-registered investments. So if you do hold an account like stocks, mutual funds or segregated funds inside your TFSA you’ll not have to pay additional tax on the growth of your accounts. When you factor in many markets that have done around 7% or greater that can be a significant amount of money that you do not have to pay tax on.
    For many Canadians when they retire they are retiring into a larger tax bracket than they planned for. This makes the tax-free withdrawal a perfect solution as it will not add to your total income.

    A TFSA is a valuable financial tool that offers tax-free growth, flexible contributions and withdrawals, and a wide range of investment options. It provides individuals with the opportunity to save and invest money for various financial goals while minimizing taxes and maximizing savings potential. TFSA can be a great investment if you utilize it correctly. For more information or help setting up your TFSA please contact us and one of our representatives would be happy to help.