Why go for Tax-Free Savings Accounts?
Tax-Free Savings Accounts are the most beneficial and flexible bank account, an initiative by the Federal Government in 2009 to encourage Canadians to save and keep more of their money. TFSA is a substantial savings plan, by contributing maximally consistently each year will give sufficient growth potential over the long-term. It’s designed to help individuals contribute to their savings for retirement or anything like Home renovations, for a vehicle, a wedding, a vacation or for emergency savings. TFSA and RRSP are together worked best to improve the wealth and a good choice for more immediate objectives, such as a house down payment. TFSA investment is a tax-free basis, without tax consequences or repayment requirements. Unlike an RRSP, TFSA need not be converted to an income product at age 71. TFSAS more like a catch-all bucket that holds a wide variety of investments, like GICS, bonds, ETFS, stocks, segregated funds, mutual funds, exchange-traded funds, options, etc. Besides a relatively safe investment with possible higher rewards.
Eligibility
Canadians who are at least 18 years or over 18 years of age are eligible to save or invest in a TFSA. The annual contribution room accumulates from the second an individual is eligible for a TFSA and holds a valid social insurance number. But the residents of Alberta, Ontario, Prince Edward Island, Quebec, and Saskatchewan, residents who wish to open a TFSA must be 18 years of age. And the residents of British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Northwest Territories, Nunavut, Yukon must be at least 19 years of age.
What are the benefits of a tax-free savings account?
- TFSA is the 100% tax-free investment income and capital gains.
- Zero monthly fees.
- No restrictions on transactions.
- Withdrawals can be made at any time.
- All kinds of savings and other investments having the tax-free status
What is the maximum TFSA contribution limit?
Below is the example of changes made in the contribution limit per year since 2019.
2009 – 5,000
2015 – 10,000
2019 – 6,000
As of January 1, 2019, the Canadian government raised the annual limit to $6,000 per year and they’re going to an increase in the TFSA contribution room at the beginning of 2020, and we can roll an unused contribution room over into future years.
What are TFSA interest rates?
If one goes over the contribution, the government can tax 1% of the highest excess amount.
If an individual not living the country for a while, TFSA will be subject to a monthly 1% tax.
To keep up Canadian inflation, one needs to choose a TFSA with an interest rate above 2%.
What are the TFSA withdrawal rules?
Though TFSA withdrawals can be made at any time.
Withdrawals from a TFSA don’t affect your eligibility to receive Old Age Security (OAS), Guaranteed Income Supplement (GIS), goods and services tax (GST) credit, or other income-tested benefits and tax credits.
