I always think about saving money during tax time. And I think about what we want to save for. Once again that time has rolled around, and this year a friend suggested that hubby and I look into investing in a TFSA (Tax-Free Saving Account) as a great way for us to save up for our goals.
Hubby and I want to do a few things in the coming years and saving for those things would make achieving those goals all that easier. So we headed to our TD advisor for some answers to questions we had about TFSA investments and how they can help us achieve our goals.
Things we want to use our TFSA for:
- Taking our kids to Disneyland.
- Remodeling our laundry room to add a bathroom.
- Making some home improvements for our son with disabilities.
- Saving for our retirement.
What is a TFSA?
A Tax-Free Savings Account is great for long or short term goals because it is a tax shelter for your investments allowing your savings to grow quickly and tax-free. But unlike a normal savings account you can invest in much more than just cash in your TFSA.
So What Can My TFSA Hold?
Most people are unsure of what their TFSA can hold. I was. My TD advisor broke it down and made it simple for me to understand. GIC’s, bonds, mutual funds, stocks and high interest savings accounts can be used for TFSAs. But there are rules and there is a yearly cap on how much you can contribute.
3 Reasons to Open a TFSA
- The ability to earn more with a tax-free investment because your savings grow tax free
- You can earn up to 8.88% with a 3-year Security GIC Plus from TD
- TD can help you find the right Tax Free Savings solution for every type of investor from high interest savings accounts to term deposits and mutual funds.
What’s the difference between a TFSA and an RRSP?
Both are tax shelters for you to add your investments in, and although have similarities there are major differences. Each allows income earned to be sheltered from taxes. RRSP contributions are deductible on your income tax, so you get a tax break right away. TFSA contributions are not tax-deductible, but the income earned is tax free. You can withdraw from you RRSP—however you will be taxed on it. You can withdraw from your TFSA and pay no taxes on your interest earned.
What are some other benefits of having a TFSA?
Any income you earn on your TFSA will not affect your eligibility for federal tax credits. Meaning I can earn income on my TFSA investment and it won’t affect things like my Canada Child-Tax Credit, Old Age Pension, Working Tax Benefit, or GST Rebate, just to name a few.
Example: Denis is retired. He gets a pension and OAP plus CPP benefits monthly. He earns $500 a year in interest on his Tax Free Savings Account. This income plus any withdrawals he makes on the account will not affect his monthly credits that he receives. If he earned $500 in a regular savings account in interest he would have to report this to his tax return and that would affect his benefits.
There is lots of information to learn about TFSA’s, and our TD financial advisor answered all our questions for us. It’s important to speak to an advisor before opening an account. It’s not just the contribution ceiling you have to worry about. There are other rules to follow so you can make the most of your TFSA.
Please visit https://www.tdcanadatrust.com/products-services/investing/tax-free-savings-account/tax-free.jsp to find out more info on the various TFSAs available, FAQs, what a TFSA is and what the difference of an RSP and a TFSA.