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Tax Free Savings Accounts (TFSA) - Benefits for Seniors

Tax Free Savings Account (TFSA) and Seniors


The TFSA provides seniors with a tax-efficient savings vehicle to help meet ongoing savings needs, even after they reach age 71. Whereas for RRSP, seniors when they reach age 71, are required to convert their registered retirement savings into another type of retirement income vehicle (with annual minimum withdrawal requirement), TFSA has no age requirement. Seniors can hold TFSA past the age of 71, hence the product is referred to as a savings vehicle for all Canadians above the age of 18, a Canadian resident, and with a social insurance number.

Neither the income earned in a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits such as Old Age Security, Guaranteed Income Supplement benefits and the Goods and Services Tax Credit. The income earned has no effect on federal income-tested benefits at all, in short the product may be referred to as "transparent" unlike RRSP, and RRIF wherein the withdrawals may trigger claw-backs of federal income benefits.

Scenario 1- Senior Couple:

Mark and Patricia are retired and living comfortably on Mark’s pension. Patricia also receives a small work pension based on her years of work after raising their children. They would like to save Patricia’s pension each month and use the money it to spend the winter season in Florida (the couple are snowbirds). The TFSA will provide them with an effective means to save for their trip south each year, without paying tax on the interest earned on those savings

Impact of a TFSA on Federal Income-Tested Benefits and Credits

TFSA - savings incentive for low and modest-income seniors:

A TFSA improves savings incentives for low- and modest-income individuals since neither the income earned in a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as the Canada Child Tax Benefit, the GST credit, the Age Credit, Old Age Security and Guaranteed Income Supplement benefits.

Scenario 2 – where the Senior Couple receives Federal Income Benefits

Walter and Mary, a modest-income couple, expect to receive the Guaranteed Income Supplement (GIS) in addition to Old Age Security and Canada Pension Plan benefits when they retire. They have saved for a number of years in their TFSA and now earn $2,000 a year in interest income. Neither this income, nor any TFSA withdrawals, will affect the GIS (Guaranteed Income Supplement) benefits (or any other federal income-tested benefits and credits) they expect to receive. If this $2,000 were earned on an unregistered basis, it would reduce their GIS benefits by $1,000.

To find out the comparatives of TFSA with an open (non-registered investment vehicle) follow this link to the TFSA calculators of Federal government website:

http://tfsa.gc.ca/cal-eng.html

Learn More about the Tax-Free Saving Account:

Visit the Finance Canada website at:http://www.fin.gc.ca/fin-eng.asp

Visit the Canada Revenue Agency website at:http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html

Visit the Budget 2008 website at:http://www.budget.gc.ca/2008/plan/chap3b-eng.asp

This article is presented for general information only. Consult your financial advisor for advice regarding your specific financial situation.

Labels: investments, new savings vehicle, retirement savings, save taxes, Savings Goals, tax free income, tax free savings account, tax planning

posted by laramaryann @ 6:03 PM