Now that your focus has shifted away from your RRSP’s for a few months, why not consider looking into a Tax-Free Savings Account (TFSA)?
The Federal Government introduced the product last year to help Canadians save, and not just for retirement. Whereas an RRSP is intended for retirement, a TFSA is like an RRSP for everything else in life. Use it to save for home renovations, a car, education, even an emergency fund - the choice is yours.
Here’s the big bonus — you don’t pay tax on the growth or earnings of your investments, even when you make a withdrawal. And you can withdraw it any time, for any purpose.
The TFSA offers many great benefits:
· Use it to save for anything
· Investments grow tax-free, so you don’t pay tax on growth, dividend or interest income
· $5,000 is the yearly maximum contribution for everyone, beginning in 2009. This will be increased periodically to keep pace with inflation
· Unused contribution room is added, or carried over, to the next year, just like an RRSP. So if you contribute only $3,000 in year 1, your contribution limit in year 2 would be $7,000 ($2,000 carried over from year 1, plus $5,000 for year 2)
· Withdraw money anytime, for any reason, tax-free. Put the money back in any future years
· Amounts you withdraw are added to your contribution limit next year. So, if you contributed $5,000 in year 1, then withdrew $1,000, your contribution limit in year 2 would be $6,000 ($1,000 from year 1, plus $5,000 for year 2)
· Withdrawals won’t trigger clawbacks on Old Age Security, the Canada Child Tax Benefit and other federal income-tested benefits or credits because withdrawals aren’t considered income
· Can make contributions to a spouse's TFSA if their available contribution room allows
· Can transfer tax-free to a spouse at death
· Choose a variety of investments — all the same ones you’d hold in an RRSP
· No need to convert or withdraw money at age 71
· Intended for almost everyone, as long as you’re a Canadian resident, 18 years or older with a social insurance number, and have filed a tax return, even if you don’t earn an income, or are retired.
There are a few other noteworthy points to mention about the TFSA:
· Contributions aren’t tax deductible like they are for an RRSP
· Claiming a capital loss isn’t allowed if your investment’s value drops
· Interest charges aren’t deductible on money you borrow to contribute
If you have $5000-$10,000 in a savings account, it makes sense to consider transferring it to a TFSA so that you can start earning tax-free interest on those funds. Cambrian’s TFSAs earn the same interest rates as our Premium Savings accounts and GICs, so you have nothing to lose! To learn more about the TFSA or to open yours, stop in at your Cambrian branch, or visit our website at www.cambrian.mb.ca.
Adapted from an article from Credential Securities Inc.