A TFSA, or Tax-Free Savings Account, is not your average savings account. TFSAs have existed since 2009 and as their name suggests, they have a unique advantage over other savings and investment products.
Wondering if a TFSA might be a good fit for you? Here are a few benefits to consider.
It's right there in the name — tax-free. All of the money you put into a TFSA, along with the interest earned, is not subject to taxes. With a TFSA, your deposits are not tax deductible (meaning they won't reduce your income taxes), but you'll save in the long run. This is different than saving with an RRSP, where your deposits are tax deductible (meaning you can claim them toward lowering your income taxes now, but you'll owe tax later when you withdraw).
If you've already contributed the maximum amount to your RRSP, you can deposit additional savings into a TFSA and avoid paying tax penalties. Similarly, you can reduce significant taxes on high-yield investments in the same way. If you invest in products like stocks*, bonds* or mutual funds*, keeping them in a TFSA can help lower the taxes owed on any earnings, which keeps your money working for you.
Unlike other savings plans, like an RRSP or a fixed-term GIC, you can take money out of your TFSA anytime, for any reason. This offers you peace of mind knowing that your money is accessible if and when you need it. That's why TFSAs are a great choice for both short-term goals (new car, home renos, emergency fund), and long-term goals (retirement and estate planning).
Each year there is a maximum amount that you can put into your TFSA. The contribution limit for 2024 is $7,000. However, if you've never contributed before you're eligible to deposit the total for the past years combined (in 2024 that would be $95,000). If you miss maxing out your TFSA deposits one year, you're able to catch up down the road.
TFSAs are available to help you achieve your goals. Speaking with a financial advisor can help you determine if and how they fit into your overall financial strategy.
*Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.