Yes - - - a Tax Free Savings Account (TFSA) can work for you !
One year ago, the federal government introduced the Tax - Free Savings Account (TFSA). It has been called the single most important personal savings vehicle since Registered Retirement Savings Plans (RRSP) was launched in the late 1950’s.
Is theTFSA really that good – and should you have one? The answers are yes and yes – but only if you are just starting out in life, retired or anywhere in between. Is that you?
Then here’s why you should have a TFSA:
Tax-free growth: As a Canadian over the age of 18, you are eligible to save up to $5,000 a year in TFSA investments that grow in a tax-free basis.
Tax-free withdrawals: You can make TFSA withdrawals at any time for any reason – and the money you withdraw is tax free.
Make the most of your contribution room: You can contribute $5,000 a year plus the total of withdrawals made in the prior year. And if you don’t use all of your contribution room right away, it accumulates year after year – fill it at any time you choose. By the way, a contribution to investments held within a TFSA does not affect RRSP contribution room.
Investment flexibility: Investments that are TFSA eligible can be the same as those available for investments held within RRSPs, including mutual funds, money market funds, Guaranteed Investment Certificates (GICs), publicly traded securities, and government and corporate bonds.
Personal financial flexibility: A TFSA works well for short- or long-term financial goals such as:
• A ready source of emergency funds.
• Saving for a new car, cottage or dream vacation.
• Saving for the down payment on a new home or starting your own business.
• Reducing taxes on your non-registered investments.
• Adding to your retirement savings.
• Adding to education savings beyond Registered Educational Savings Plan (RESPs).
• Splitting income with your spouse to minimize taxes.
• And TFSA withdrawals don’t affect your eligibility for income-tested federal benefits such as Old Age Security (OAS).
There are other ways in which a TFSA could work for you. Your professional advisor can take a close look at your personal situation and help you get the most from a TFSA and every other element in your overall financial plan.
This is presented for general information only, please consult your professional advisor on your specific personal financial situation, and how a TFSA can fit into your financial plan.
Play this video on how you benefit from a TFSA. For more information on TFSA, visit:
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:
