The TFSA, A Key Savings Vehicle

 

The TFSA has become a very popular savings and investing vehicle over the past decade, allowing investors to generate tax free investment income and capital gains. Many investors use the TFSA for more shorter-term financing goals, like buying a house or saving for a vehicle. However, the TFSA is now a major piece in an investment plan for retirement. Here is a quick breakdown of the TFSA:

  • As of 2021, the contribution limit is $6,000 per year. Assuming you were 18 in 2009 when the TFSA was introduced, you have $75,500 of total contribution room.
  • In general, a TFSA is allowed to hold the same investments as a registered plan. This means publicly traded stocks and ETFs are allowed along with mutual funds and bonds.
  • If you own US securities in a TFSA, there are withholding taxes on dividends.
  • There are no tax implications to pull money out of a TFSA, because you are using after tax dollars to contribute.
  • All investment income and capital gains are non-taxable in the TFSA.

As you can see, with $75,500 in contribution room, the TFSA has become a significant part of a financial plan. Allowing capital to compound at tax free rates can really add up so a significant sum, we suggest that all investors utilize the TFSA for all financial goals, short or long term. There has been much debate about whether an investor should choose a TFSA or RRSP, and the most straightforward answer is, it depends on the individual’s circumstances. In many cases, a combination of both is a great approach.

 

If you would like to know whether a TFSA makes sense for you, please contact us for a financial review

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