Achieving your financial goals all starts with a financial plan.
A Tax Free Savings Account (TFSA) is a government-registered investment or savings account with annual contribution limits. TFSA allows you to earn tax-free investment income and capital gains in the account throughout your lifetime.
Here are the key advantages of a TFSA that will help you achieve your financial goals:
Diversify your tax-planning mix.Many investment accounts are taxable, and Registered Retirement Savings Plans (RRSPs) have certain restrictions and limitations. TFSAs give Canadians an additional tax-planning option to help reduce your taxable income.
Withdraw any time without being taxed.TFSA withdrawals are not taxed and not included in taxable income. This means there is no impact on Old Age Security (OAS), Guaranteed Income Supplement (GIS), and other income-tested benefits from the federal government. Being able to freely withdraw your TFSA funds also means you can place them into other investment opportunities at any time for further growth.
Grow your investments without being taxed on the gain.A TFSA acts as a tax shield for the investments within the account. Funds invested in a non-registered account would require you to claim the investment’s earnings as income on the tax return. By investing in a TFSA instead, you will not pay any tax on the capital gain.
Use any extra contribution room from previous years.If you come into a larger sum of money, such as from a tax return or vehicle sale, a TFSA may be a good place to place it if you have extra contribution room. That’s because any unused contribution room from previous years, or from previous withdrawals, carries over to the current year. The more money you invest in a TFSA, the more you earn tax-free.
Balance out your RRSP contributions.TFSAs and RRSPs are two tax-saving tools with different advantages and limitations. They can be great to complement each other in different scenarios. For example, if you have enough RRSP contribution room you can take money out of your TFSA to contribute to your RRSP and reduce your taxable income.
Achieving your financial goals may begin with smart saving, but to grow your wealth efficiently requires mindful investment of those savings through the right channels to achieve your specific goals
At Access Credit Union, we can help tailor a personalized wealth strategy to help map out your long-term plan to inform and guide these important decisions.
Are you ready to plan for a secure and enjoyable future?