You can contribute up to $6,500 to your TFSA this year. You may be eligible to contribute even more if you have contribution room remaining from previous years.
With a TFSA you can build your savings faster by not paying tax on your
earnings. Save for anything you want from a down payment for a house, post-secondary
tuition, or a vacation – all with the flexibility of withdrawing your money
when you need it without penalty.
If you are considering opening a TFSA and want to learn more about it,
here is a quick primer to get you started.
What is a TFSA?
A Tax-Free Savings Account (TFSA) is a registered account that allows
your investment earnings to grow tax-free. It is designed for any savings goal –
big or small. Withdrawals can be made at any time without penalty and the
earnings on your investments will not be taxed.
What are the
benefits of a TFSA?
- Flexibility – You can choose investment options suitable for your financial needs and you can withdraw any amount from your TFSA at any time without penalty
- Tax-free growth – Your investment earnings grow tax-free in your TFSA and you will not be charged on the earnings when it is withdrawn
- Rolling contribution limits – The amount of a withdrawal from your TFSA can be added to your contribution room the following year
How does a TFSA
work? Think of a TFSA as a basket that allows you to hold more than just GICs –
you can hold stocks and mutual funds as well.
Contributions to a TFSA are made with after-tax dollars – since you paid
taxes on the money going into a TFSA you will not have to pay taxes on the
money withdrawn from a TFSA.
The earnings on your investments grow tax-free. The investment gains are
not taxed inside a TFSA and they are not taxed when withdrawn from a TFSA.
What are the
permitted TFSA investment options?
You can hold any of the following investment options in your TFSA:
- Cash
- Stocks
- Bonds
- Mutual Funds
- GICs (Guaranteed Investment Certificates)
- ETFs (Exchange-Traded Funds)
How
much can you contribute?
The TFSA contribution limit for 2023 is $6,500 – but
you can also carry over unused contribution room from previous years.
The current lifetime contribution room is $88,000 –
provided you were at least 18 years old in 2009, the year TFSAs were introduced
by the federal government. This means if you are at least 32 years old and have
not contributed to a TSFA – you are eligible to contribute the full $88,000.
If you withdraw funds from your TFSA, the amount you
take out is added back to your contribution limit for the following year.
You can find your TFSA contribution room by visiting the Canada Revenue Agency website.
Can you over-contribute to a TFSA?
Make sure you know your contribution limit – the CRA
will issue a penalty for over-contribution. If you exceed your contribution
limit you will be charged 1% a month for your over-contribution amount until
you withdraw it.
I have an RRSP -
do I also need a TFSA?
A TFSA can complement your RRSP - the two accounts can work together to
improve your financial outlook in your retirement. If you have reached your
RRSP contribution limit and have more savings to invest then a long-term
investment in a TFSA can increase your retirement income.
Talk to a
financial advisor
Nothing beats personalized advice. To get the most out of your TFSA
contributions and take advantage of the investment earnings potential talk to a
financial advisor. UCU
Wealth Strategies Group can help you make smart investment choices. They will
look at your financial situation and help you create an investment strategy
that is right for you.
For more information, please visit your local Branch or the UCU
website.
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