TFSA - Tax Free Savings Account

 
There are different defintions for the TFSA, depending on whom you speak with, the American side version is  as follows.

A tax-free savings can be a municipal bond, a money market fund that contains municipal funds or a federally qualified tax-free savings such as a Roth or health savings account. 

Then you have the Canadian form of TFSA.

An account that does not charge  taxes on any contributions, interest earned, dividends or capital gains, and can be withdrawn tax free.

Tax-free savings accounts were introduced in Canada in 2009 with a limit of $5,000 per year, which is indexed for subsequent years.

The contributions are not tax deductible and any unused room can be carried forward. This savings account is available to individuals aged 18 and older and can be used for any purpose.

The new Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs.

The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

How the Tax-Free Savings Account Works

Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
Investment income earned in a TFSA is tax-free.

Withdrawals from a TFSA are tax-free.

Unused TFSA contribution room is carried forward and accumulates in future years.

Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax. Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.

Contributions are not tax-deductible.

Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.

Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
TFSA assets can generally be transferred to a spouse or common-law partner upon death.

A TFSA has some of the features of a registered retirement savings plan (RRSP) — income earned inside a TFSA is not taxable, although you won't get a tax refund for the amount invested the way you would for an RRSP contribution. Tax-free savings accounts also have few of the drawbacks, since the money can be taken out tax-free at any time.

If you are considering Retirement Planning, call for a free consultation today.


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