A TFSA (Tax Free Savings Account) allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned in a TFSA are tax-free for life….even when you withdraw them. The “catch” is that there is a maximum amount you are allowed to put in a TFSA- most people have $88,000 of TFSA contribution room. That said, folks who maximize their TFSA usually have a balance of more than $88,000 since it’s permitted to grow just like any other investment account should.
Where can I open a TFSA?
TFSAs can be opened at investment brokerages (like Bowie Financial Inc), banks, trust companies, insurance companies, and credit unions in Canada. It’s important to work with a company that understands how to maximize this unique account (like someone who understands taxation).
How do I invest using a TFSA?
A TFSA is like a vehicle for your money. It can hold all sorts of investments and you can have more than one TFSA as long as you follow the rules, so good advice is key. Many Retirees choose Segregated Funds because they offer a 100% Beneficiary Guarantee to protect their money from a market shortfall; while allowing it to continue to grow in the market. There are also GICs, Stocks, Mutual Funds (the Seg. Fund’s riskier cousin), Savings accounts, Bonds, ETFs, and more.
Is there a maximum I can contribute to my TFSA?
As of 2023, if you have never contributed before you can typically contribute $88,000, you would have had to be 18 or older since its initial introduction in 2009 to have this total contribution room. The TFSA contribution room has grown by $6500 this year, while the annual TFSA contribution room dollar limit for the years 2019, 2020, 2021, and 2022 was $6000 for each year. Each year that total contribution room grows. Unused TFSA contribution room rolls over from one year into the following year.
For example, in 2022 the total TFSA contribution room was $81,500 and now, in 2023 it’s $88,000 ($81,500 + $6500= $88,000).
Keep in mind that your TFSA can grow and your contribution room stays the same. Some people have TFSA’s they’ve contributed $81,500 to that are worth $105,000+ because of the growth in the account. When the contribution room increases by perhaps $6000 next year, they will add another $6000 to that account to continue to capture Tax-Free growth.
What happens to my TFSA when I die?
If you’re married, your spouse can take over your TFSA room and it can continue to grow tax free in your spouse’s name. Also, TFSAs can be paid out quickly and tax-free to your beneficiaries. In most cases, you can name beneficiaries on your account and that money would even bypass Probate/Ontario’s Estate Administration Tax. They are a great way to save long term for an Estate!
When I take money out of my invested TFSA that’s made money, I really don’t have to pay taxes?
Nope, you really don’t have to pay taxes! All gains in your TFSA are truly tax-free – just make sure you follow the rules…or find an Advisor that will keep you in line 🙂