Tax-Free Savings Account: Have you got yours?
We’re almost through the year 2009, and you most likely made a RRSP contribution at some point this year. But did you make a contribution to your Tax-Free Savings Account? If you haven’t opened one, you’re missing an excellent opportunity to save and invest without worrying about the future tax burden.
With a Tax-Free Savings Account (TFSA), if you are over 18 years old, you can save up to $5000 each year. You won’t get a deduction, like you would with the RRSP, but you do get a nifty bonus. Any investment return you get – interest, savings, or capital gains – is not taxed, not while it builds up inside the plan, and not when you withdraw it. This is a great companion strategy to help pay for education, plan for retirement, and buying a home. You can even set up a TFSA to help you budget for Christmas presents and annual vacations.
If you felt the crunch of the recession this year, and weren’t able to make a TFSA contribution, don’t worry. Any unused room from this year will carry forward. So if you only made a one-time $50 deposit into your TFSA, you still have $4950 in contribution room that carries forward to 2010. This means you have a total of $9950 of contribution room for next year. If you don’t contribute at all in 2010, you will have contribution room of $14,500 in 2011.
You get the idea.
Another important item: if you are saving your TFSA for future use, the withdrawals won’t affect any income-tested benefits. The Canada Child Tax Benefit, Old Age Security, and the Guaranteed Income Supplement aren’t altered when you make a withdrawal.
If you are thinking about making some big personal and financial changes next year, the TFSA is definitely a good starting point. Keep in mind, though, that you need to put together a financial plan, and find out where the TFSA fits in, in order to get the most out of it.
Tags: Investments, Tax Free Savings Account, Tax Planning, TFSA
This entry was posted on Wednesday, December 16th, 2009 at 4:09 pm and is filed under Investments, TFSA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
