A TSFA account (Tax-free Savings Account) is a government-sponsored investment account that was introduced in 2009 as a way to encourage Canadians to save for their retirements. For many people, a TSFA is a simple, little bank account where you can store away some money and not pay any taxes on it. You collect the interest from your bank and watch it grow and grow until you’re 65.
But TFSAs are much more than that. Instead of a TFSA being a simple bank account, it can actually work much more in your favour. You can put a whole bunch of investments into a TSFA, such as stocks, bonds, ETFs, or anything else, and keep them there as you’re investing with that money. You can improve your interest rates by placing your money into different things while enjoying that tax-free benefit of the account.
Even better is that, unlike an RRSP, TFSAs aren’t tax-deferred. An RRSP defers your taxes so you don’t pay anything now, but will once you remove the money, you will be taxed. So your tax bill at retirement increases by withdrawing your money. With a TFSA, you’ll never be taxed for the money you placed there, regardless of how much your investment has grown.
There are limits, however. You cannot deposit more than $5500 per year. If you do, you will be charged a penalty of 1% per month on the amount in your TFSA that is over $5500. Conversely, if you don’t deposit $5500, you can roll over that remaining amount to next year. If you’ve never contributed to a TFSA before you, this benefit applies to every year after you turn 18. So a 30-year old who’s looking to start a TFSA account will have 12 years times $5500 to deposit. That’s $66000!
If you have any more questions, come and talk to Naicker & Associates, certified tax accountants and tax specialists serving Burnaby, Port Moody, Coquitlam, and the rest of the Lower Mainland.