Don’t have a TFSA yet? Time to start one to start saving money!
There are so many competing demands for our money because we have to decide where and how to invest it. A TFSA is something to consider. You then have to take into consideration the rate of return, timing, frequency, limits, fees, taxes and other investments, like RSP’s.
The easy part of the decision is yes, you need to do this. The details are important to note, so let’s run through some of the details:
Return – with a TFSA, the rate of return varies with the type of investment. You don’t pay tax on it, which makes this investment a great option. Inside your TFSA, you can have stocks, funds, bonds, GIC’s or regular savings.
Timing – you want to maximize your contribution inside of a tax year up to a maximum of $41,000. It doesn’t matter how many banks and TFSA accounts you have, the limit is the same. All your TFSA’s are reported to the government through your SIN number, so you don’t want to over contribute, or you’ll suffer the penalties, and lose your earnings!
Frequency – with a TFSA, you can put the money in and withdraw as much as you like, which is really flexible and convenient. These are often used as emergency funds, or big ticket items such as saving for a vacation, vehicle or tuition. Since you don’t get dinged with tax, you get a 100% return right away.
Limits – until the next Federal Election later this year, you can contribute an additional $5500 per year after you reach the $41000 limit.
Fees – The interest earned is not taxable and the bank fees/trading fees are not a deduction.
Taxes – all interest you earn from your TFSA is tax free and the withdrawal is tax free too.
Competing Priorities – you really have to think about where to put your money to maximize your return and the obvious contender is an RSP. There are different rules with each avenue. With an RSP, the withdrawals are taxed and the contributions earn you a refund. If you withdraw your RSP or partial amount, you will receive the after-tax amount.
If you don’t have a TFSA, you can get one today and start investing. Even if you have to start small, it’s important to get started. You can contact us or your favourite banking institution for details.
If you already have one, call us today to make sure you are optimizing your choices and making your money work for you!
