Tax-Free Savings Account (TFSA)
Introduced in the 2008 federal budget and effective for January 1, 2009, the TSFA is an extremely flexible savings vehicle that allows the owner to make contributions (up to an annual maximum amount), to carry forward unused contribution room and to withdraw funds at any time without losing the right to re-contribute an equal amount in a later year. The powerful incentive of the TFSA is that the investment income or growth is not taxed and withdrawals are tax-free.
A TFSA may hold a wide range of qualified investments such as stocks, bonds and other popular portfolios including mutual funds, segregated funds and GICs.
There is no restriction on how withdrawals can be used. Withdrawals may be made for personal reasons, investment, education or any other purpose.
The contribution room is calculated as:
contribution room balance at the beginning of the year
+ the annual maximum contribution amount
+ the actual amount of any withdrawals made in the prior year
– contributions made in the current year.
In this fashion, unused contribution room is carried forward and new room is created as withdrawals are made (but will not be available until the year after the withdrawal). It is expected that the CRA will report each taxpayer’s contribution room on their Notice of Assessment along with registered retirement savings plan (RRSP) contribution information.
An individual must be at least 18 years of age to open a TFSA. The maximum contribution amount in 2009 is $5,000. The maximum amount will be indexed in future years.
Over-contributions will attract a penalty tax of one per cent per month until the excess is withdrawn.
The reasons for setting up a TFSA are many, ranging from the need for savings to the income tax advantages. Without a doubt, a TFSA will become a common component of every financial plan, whether it is used to accumulate funds in the medium term or to maximize the tax planning opportunity.
The TFSA is something every taxpayer should consider.
Tax-Free Savings Account (TFSA)
Introduced in the 2008 federal budget and effective for January 1, 2009, the TSFA is an extremely flexible savings vehicle that allows the owner to make contributions (up to an annual maximum amount), to carry forward unused contribution room and to withdraw funds at any time without losing the right to re-contribute an equal amount in a later year. The powerful incentive of the TFSA is that the investment income or growth is not taxed and withdrawals are tax-free.
A TFSA may hold a wide range of qualified investments such as stocks, bonds and other popular portfolios including mutual funds, segregated funds and GICs.
There is no restriction on how withdrawals can be used. Withdrawals may be made for personal reasons, investment, education or any other purpose.
The contribution room is calculated as:
contribution room balance at the beginning of the year
+ the annual maximum contribution amount
+ the actual amount of any withdrawals made in the prior year
– contributions made in the current year.
In this fashion, unused contribution room is carried forward and new room is created as withdrawals are made (but will not be available until the year after the withdrawal). It is expected that the CRA will report each taxpayer’s contribution room on their Notice of Assessment along with registered retirement savings plan (RRSP) contribution information.
An individual must be at least 18 years of age to open a TFSA. The maximum contribution amount in 2009 is $5,000. The maximum amount will be indexed in future years.
Over-contributions will attract a penalty tax of one per cent per month until the excess is withdrawn.
The reasons for setting up a TFSA are many, ranging from the need for savings to the income tax advantages. Without a doubt, a TFSA will become a common component of every financial plan, whether it is used to accumulate funds in the medium term or to maximize the tax planning opportunity.
The TFSA is something every taxpayer should consider.