A few years ago, The TFSA was introduced. While many folks are using this option each year, there are still questions about what it is, and how it could form the start, or a part of your investment mix. Whatever you’re saving for, a tax-free savings account is a great option.
Here are the basics you need to know:
• What is a tax-free savings account (TFSA)?
A TFSA is a registered savings account that allows you to earn investment income tax-free. Contributions are not deductible for tax purposes and withdrawals of contributions and earnings are not taxable.
• What options do I have?
The tax-free savings account provides you with plenty of options—like a high interest Tax Free Savings Account, a redeemable term deposit and a non-redeemable term deposit. Talk with your financial advisor to find out the best option for you.
• Who can open a TFSA?
Any individual (other than a trust) who is resident in Canada, is 18 or older and has a social insurance number can establish a TFSA at a credit union or other financial institution eligible to issue RSPs.
• How much can I contribute to the TFSA each year?
You are allowed to contribute $5,500 each year. If you don’t contribute $5,500 in a year, the unused amount is added to the next year’s contribution room (e.g. if you only contribute $2,500, the next year your contribution limit will be $8,500).
• How long can I carry forward unused contribution room?
There is no limit on the number of years unused contribution room can be carried forward.
• What happens if I contribute more than my contribution room?
Excess contributions are subject to tax of one per cent per month for each month the excess remains in the plan.
• Are there any restrictions on withdrawals?
No, you can withdraw any amount in the account for any reason.
• Do contributions and withdrawals affect my taxes?
TFSA contributions are not deductible in determining income for tax purposes, and amounts earned in or withdrawn from TFSAs are not included in determining income for tax purposes.
• Can I use my TFSA assets as security for a loan?
Yes, you can use the TFSA assets as security for a loan.
• How do I know what my TFSA contribution room is for the year?
The Canada Revenue Agency (CRA) will determine your TFSA contribution room each year you file an income tax return.
• Where can I get more information?
Visit Valley First, or valleyfirst.com for more info and a complimentary financial plan.