Saving for your financial future is very important. For those that are in Canada, there are a variety of investment account options that could help you to build wealth over a long period of time. One of the options is a tax-free savings account, or TFSA. There are several factors that you should understand about how TFSAs work that could help you to be more educated and take advantage of this very beneficial investment opportunity.
One of the main advantages of a TFSA is that there are significant tax benefits. A TFSA is funded with after-tax dollars that you earn from your normal income. You will then have a wide variety of places where you can invest this money through the TFSA. The main advantage of this account is that you will not be taxed on any interest income or other profits that you earn through the TFSA, which could be a significant tax savings over time.
Annual Contribution Limit
Due to the tax benefits that come with a TFSA, there are contribution limits that you need to abide by on an annual basis. As of 2019, the annual contribution limit that you could make into your TFSA was $6,000, but this figure will be adjusted every few years based on inflation. If you do accidentally put too much money into the account in any given year, you could end up facing a penalty of as much as 1% per month.
Wide Range of Investment Options
Many people also like TFSAs because they provide a very wide range of investment options to choose from. Some of the top investments available include investing in stocks, mutual funds, cash, bonds, and GICs. This helps to ensure that the investment options are available to match any strategy or risk profile.
Flexibility of Withdrawals
Another benefit of a TFSA is that you have a lot of flexibility when it comes to withdrawals. Most people today use a TFSA account to build wealth for retirement or other long-term goals. However, you can actually use the money for any purpose you want including buying a car, taking a vacation, or paying off personal debt. Best of all, you will not face any penalties or taxation for withdrawals at any time.
Available to All
A TFSA account is essentially available to everyone in Canada over the age of 18. All people will be able to contribute up to the annual limit and take advantage of the tax benefits. You will also have the opportunity to invest additional money into either your spouse’s or common law partner’s accounts to maximize the benefit.
Ultimately, finding ways to save and plan for the future is very important. For people in Toronto and all over Canada, a TFSA is a great tool that could be used to help reach investment goals. A TFSA is a very unique investment tool that has a variety of rules and benefits that should be properly understood to maximize your long-term financial benefit.
I set this blog up a couple of years ago now as a way to share my experience that I’ve gained through my school education and my real life education. It sounds geeky, but the economy is something that I’m really passionate about and it’s something that I am actually pretty talented in, so it’s great for me to share these experiences with those that may be struggling a little bit with finance and figuring out how to navigate the economy.