WHAT IS A TFSA?
A Tax-Free Savings Account (TFSA) is a registered plan in which you can set money aside tax-free for various projects throughout your lifetime.
HOW IS IT DIFFERENT FROM AN RRSP?
Unlike an RRSP, which is designed to focus on retirement, a TFSA affords a lot of flexibility for using your savings to carry out different projects. The main difference between the two plans is the tax aspect. Money invested in a TFSA is not tax deductible. Then again, when you make a withdrawal, no tax is charged on the withdrawal. In comparison, RRSP contributions are tax deductible, but withdrawals are fully taxable. You can usually withdraw money from your TFSA at any time† and for any reason without tax consequences.You can even re-contribute withdrawn amounts in subsequent years, although there is no obligation to do so. † Some restrictions may apply, depending on the investments chosen.
WHO CAN CONTRIBUTE TO A TFSA?
Anyone 18 years of age or over can contribute to a TFSA. There is no age limit.
ADVANTAGES OF A TFSA
- The income you earn on your investments is not taxed. Your savings grow sheltered from tax.
- The flexible withdrawal rules allow you to save for a rainy day or a special project.
- Unlike an RRSP, a TFSA allows retirees to grow their savings and shelter them from taxes throughout their lifetime.
- TFSA withdrawals are not considered income when qualifying for certain government benefits. Benefit recipients can therefore use the money in their TFSA and their benefits will not be affected.
- Investors who contribute the maximum to their RRSP have a second savings vehicle that provides tax-sheltered growth