Tax-Free Savings Accounts (TFSAs) were introduced in 2009 for Canadian citizens. The TFSA is a registered account that was launched with an aim to help people save for different purposes or goal —a new car, a dream vacation or retirement. Many people misunderstand the TFSA with saving the account, but it’s not a savings account. In fact, it is more like a catch-all bucket that is designed to hold all your different investments that can be opened by anyone over 18 years of age. A Canadian citizen, having valid social insurance numbers can open the account.
TFSA Is Perfect If You Are Looking To
- Get more returns for your savings
- Access your investments whenever you need them
- Save your money for medium- and long-term projects
- Prepare for retirement beyond the RRSP contribution limit
It’s a Tax-Free Saving Account!
TFSA, in real terms, is a tax-free saving account, where your contribution and investments are tax-sheltered. It is an ideal solution when you don’t want to lock in your funds for a fixed term or interest rate. This means there is no tax applicable on the investment income.
Benefits of TFSA
- No Tax on Income – Earnings from qualified investments is never taxed.
- No Restrictions on Withdrawal – Money from your TFSA account can be withdrawn at any time, for any reason.
- Tax-Free Withdrawals – Withdraw your savings from TFSA without paying any interest as your savings are totally tax-free.
- Put Back the Withdrew Amount – Once you withdraw the amount, you can always re-contribute in the year or years after you withdraw them.
- No Fees – There’s no monthly or annual fee applicable with Tax-Free Savings Accounts so you can watch your money grow faster.
- Higher Interest Rate – With a higher interest rate of 1.35% p.a., account holders enjoy saving more and making money with their savings. Interest is calculated daily and paid monthly.
- Safe & Secure – Deposits are always held in Canadian currency and are insurable under the Canada Deposit Insurance Corporation Act.
Maximum Contribution Limit for TFSA
The annual limit of contribution to Tax-Free Savings Accounts is set at $5,500 for 2018. The maximum limits for savings in the TFSA account keeps changing. The maximum contribution limit from 2009 to 2012 was $5,000 and $5,500 respectively. For the years 2015 and 2016 it limit was $10,000 and $5,500 respectively. In case the candidate withdraws the amount from TFSA account, the amount withdrawn is added to your contribution room in the next calendar year.
You cannot open a TFSA account until you turn 18. The eligible legal age for the individuals can enter into a contract is 19 in certain provinces and territories.
The Tax-Free Savings Accounts isn’t prorated in the year an individual turns 18 or dies or becomes a resident or a non-resident of Canada.