The tax-free savings account is the best creation of the registered retirement savings plans (RRSP) made by the Canadian government. This plan allows your savings and investments to expand, free of tax, throughout your lifetime.
This flexible saving plan enables you to;
- Maximize your savings to utilize after retirement
- To accumulate funds to utilize on your personal projects, tax free
- Create a tax-sheltered account for any income you generate through investments, donations or inheritance
Benefits of having a TFSA
Any Canadian resident aged 18 and above should think of a tax-free savings account. Among the benefits you will enjoy include;
- It’s simple and accessible to everyone
Regardless of your income, you can start-off with an annual contribution of up to $5,500
- Tax free
Any generated earnings in your TFSA account are not taxable. This includes interest, dividends, capital gains as well as sums withdrawn.
- No restrictions on withdrawals
You can easily withdraw any amount of cash from your TFSA at any time. Unlike other plans, there are no restrictions on how to use your withdrawal.
- Cumulative contribution vehicle
Any unused annual contributions will be indefinitely accumulated in your TFSA
- It’s the best RRSP option
The plans acts similar to an RRSP account. It is the easiest and most flexible way to accumulate savings towards your retirement
- The account has no effect on your income-based government benefits
With a TFSA, you are still eligible for other government benefits such as Guaranteed Income Supplement, the Canada Child Tax Benefit, Old Age Security, among others.
- Can be used as collateral
TFSA assets can be used as collateral for a loan
- Allows income splitting
A couple may choose to create two TFSA accounts regardless of whether one has an income or not.