Investment and Retirement

The TFSA: a complementary addition to your client’s savings portfolio

The Tax-Free Savings Account (TFSA) is probably the single most important savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP). It combines the flexibility of non-registered investments with some of the tax advantages of registered plans.

 

THE TFSA'S ANNUAL CONTRIBUTION LIMIT HAS BEEN RAISED

The federal government has announced that Canadians can now save $500 more in their TFSA, as the annual TSFA contribution limit has been raised from $5,000 to $5,500 as of January 1, 2013.

 

REMINDER OF THE TFSA RULES

Created on: January 1, 2009

Eligibility criteria: Canadian residents aged 18 and over

Characteristics:

• Tax-free investment income
• Non-taxable withdrawals
• Annual contribution limit
  • $5,500 as of 2013
  • $5,000 from 2009 to 2012
• Unused contribution room
  • The fastest way of finding out how much unused contribution room an individual has is to contact the CRA directly (via telephone, Internet or mail). Unlike with RRSPs, the information about unused TFSA room does not appear on the federal government's notice of assessment.
• Upon withdrawal, additional contribution room is created for the following year

Other features:

• Neither investment income nor withdrawals will affect eligibility for federal benefits and tax credits which are based on income
• There is no age limit on withdrawals
• Excess contributions are subject to a 1% monthly penalty

 

WHO BENEFITS MOST FROM THE TFSA?

The main advantage of the TFSA is that you can accumulate savings tax-free without any restriction as to the time or amount of withdrawals. This is an extremely interesting alternative to non-registered plans:

• Savings for short- or medium-term projects
• Retirement savings for low-income earners
• Additional retirement savings for affluent clients
• Advantages for retirees
• Shared savings between spouses

 

To learn more about the TFSA, click here.

Choosing between an RRSP and a TFSA? To help you decide, click here.