Friday, December 12, 2008

Idiots Guide to Tax Free Savings Account

If you would like to save $14.95 on the purchase of the book shown to the left (not a real book anyway), then heed this warning - since no two people are the same, then how you approach a TFSA is different for every person as well. I am constantly reminding people that hearing what someone at work is doing, or your neighbour or brother in law thinks may lead you down the wrong path.

In the past week, I have had seven meetings with clients interested in setting up a TFSA or at least learning about them. I decided to run a TFSA 101 course based on some of these conversations.

Obviously (to me at least) I am kidding. To refresh, I have included some information from a previous blog.

Here are a list of the top 10 things to know about the TFSA.

  • The Tax-Free Savings Account lets you invest while not being taxed on interest or investment earnings.
  • You can contribute a maximum of $5000 a year. A couple can each contribute $5,000. If you contribute $5,000 each year for 5 years you’d have more than $25,000 earning interest Tax-Free!
  • You can have more than one Tax-Free Savings Account and you can also have Tax-Free Savings Accounts with more than one financial institution. Like RRSP’s you will need to keep track of how much you’ve contributed so you don’t exceed your limit.
  • Unlike an RRSP, you don’t have to pay any tax on money you take out of your Tax-Free Savings Account, and withdrawals from your Tax-Free Savings Account don’t affect your ability to qualify for Federal benefits like the Child Tax Benefit, Guaranteed Income Supplement, Old Age Security benefits, Age credit, or Goods and Services Tax credit – so you’re not penalized for saving.
  • You’ll be able to open savings accounts, GIC’s and mutual funds tax-free.
  • Unlike an RRSP, money you put into your Tax-Free Savings Account will not be deducted from your income on your tax return.
  • Just like an RRSP, when you file your tax return each year, the government will determine your remaining available Tax-Free Savings Account contribution limit for the coming year.
  • If you take money out of your Tax-Free Savings Account, you don’t lose the contribution room. You get it back in the following year. If you don’t make the maximum contribution you don’t lose the contribution room. The unused contribution room gets carried over to the following year. There is no limit to how much or how long contribution room can be carried forward.
  • You can open a Tax-Free Savings Account if you are 18 years of age and a Canadian resident.
  • The Tax-Free Savings Account comes to Canada January 1, 2009, but we can arrange the paperwork now.
Many journalists have espoused the benefits to holding such a product but they also caution people to research into their own situation so people avoid "following the crowd". I have included links to articles from three Toronto writers (James Daw and Tim Cestnick and Jonathan Chevreau) that explain more. If you would like more information, the best recommendation is to call me.

1 comment:

TaxFreeSavings said...

I would be the first one to purchase the TaxFreeSavingAccount Info for Dummies but since you've posted such great information, I can at least start with this article. Thanks for writing it.