The Tax-Free Savings Account was introduced in 2009. If you haven’t taken advantage of this wonderful savings tool please take a minute to learn more about how they work.
Be careful not to over contribute
If you were at least 18 years of old in 2009 then the following would be your TFSA limit amounts:
2009--$5000 2010--$5000 2011--$5000 2012--$5000 2013--$5500 2014--$5500 2015--$10,000 2016--$5500 2017--$5500
If you have never opened one of these accounts, then you would have $52,000 of contribution room available to you.
How do I find out how much TFSA room I have?
You can log onto the CRA My Account website to find out how much contribution room you have. You can also call the CRA Tax Information Phone Service (TIPS) line at 1-800-267-6999.
Making up TFSA withdrawals within a calendar year
This seems to be the area where the most confusion lies with tax-free savings accounts.
If for example you have contributed the maximum of $52,000 into your tax-free savings account, and in 2017 you needed to make a withdrawal of $5000. You would need to wait until January 1 of next year to be able to add that $5000 back to your account. On January 1, 2018 you could re-contribute $5000 to make up for the money you withdrew in 2017, and you would also be able to make your regular annual contribution in 2018.
Utilize a TFSA account as an investment account and not a savings account
The benefit of having a tax-free savings account is any growth that you make in this account is not taxed. Also, if you withdraw money from this account you are not taxed on it. We see several people treat this as an emergency savings fund or as a crutch and they are constantly putting in money and taking it out.
To get the most benefit from this account you should meet with a Financial Advisor to set up a proper mix of funds based on your risk tolerance just as you would with your RRSP. Investing this money in a daily interest savings account at the bank is easy way to get started, however with interest rates being so low you will not even pace with inflation by keeping your money in this type of account
Make it automatic.
Just like you set up your mortgage payment, car payment, car insurance and many other bills to come out on a regular basis, you can do the same with a Tax-Free Savings Account. If you haven’t opened an account or you haven’t contributed the maximum yet, set up a weekly or monthly contribution.
Call us today to set up your complimentary appointment to learn more about how you can make your TFSA account more effective.