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What’s a TFSA, you ask? It’s a Tax-Free Savings Account. The title is a bit self-explanatory, but there’s still a lot more to be aware of!
We sat down with Harshleen Singh, Wealth Advisor for Cambrian Credit Union and Aviso Wealth, to get the full picture on Tax-Free Savings Accounts and what they offer Canadians.
Here goes:
“A Tax-Free Savings Account (TFSA) is one of the most useful savings and investment tools available to Canadians,” says Harshleen.
A TFSA provides tax-free growth, meaning any interest, dividends, or capital gains earned within the account are not taxed.
In a regular, non-registered savings account (an account not registered with the government that does NOT provide tax benefits, unlike RRSPs, TFSAs, or RESPs), any interest earned is considered income and must be reported on your tax return. In Manitoba's tax system, that interest income gets added to your annual income and may increase the amount of tax you owe.
In a TFSA, both the growth and withdrawals are tax-free. It's important to note that contributions are made with after-tax dollars (your money once tax has already been deducted), so you've already paid tax on the money before putting it into the account.
The main benefit of a TFSA is tax-free growth.
For example:
Additional benefits include:
A TFSA can be customized to fit each person's financial plan, whether they are saving for short-term objectives or long-term wealth building.
“It is common to confuse TFSAs with an investment product,” says Harshleen. “Although TFSAs themselves are not investment products, they can hold investments.
“Think of a TFSA like a container or a book with many pages. Inside that container, you can hold different types of savings and investments, including cash savings, GICs, mutual funds, ETFs, stocks and equities, and bonds. The investments you choose within the TFSA should align with your goals and timeline.”
Accessibility depends on what is held inside the TFSA:
While accessibility is important, the goal of a TFSA is often long-term growth.
Investing within a TFSA allows you to benefit from the power of compounding, helping your money grow over time while remaining tax-free.
Each year, you get more TFSA contribution room. That means there’s a set amount of money you’re permitted to contribute to your TFSA each year.
A common mistake is to exceed your yearly contribution limit. If you exceed your TFSA contribution limit, the government charges a penalty of 1% per month on the overcontributed amount.*
For example, if your limit is $10,000 and you contribute $11,000, the penalty would apply to the extra $1,000 until the issue is corrected.
So, make sure you are always aware of your TFSA contribution limit, and don’t overcontribute any given year!
“You can speak with an advisor to build a plan based on your complete financial picture,” says Harshleen. “A TFSA can be tailored to your individual needs.”
Advisors can help you determine whether your goals for your TFSA and other savings are short- or long-term, assess your risk tolerance, choose appropriate investments, and build a personalized financial plan.
“We can make sure you’re going in the right direction,” says Harshleen.
Book a meeting today!
*Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Unless otherwise stated, mutual funds, other securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.
We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.
