TFSA For The Win

Whether if you have a specific saving or investing goal, using the TFSA (Tax Free Savings Account) to get you there is your best choice. I was talking about this yesterday to a couple friends at brunch so I wanted to share some of its advantages to savings over an RRSP (Registered Retirement Savings Plan) account and why you need to get on board and start saving with it.

The TFSA account allows you to save up to $5,000 per year, without it being subject to being taxed. This is amazing. Note: More in-depth information to explain all the intricacies of the TFSA is available here. This is the opposite for Unlike the RRSP account which if you take out the money it gets taxed immediately. Ouch. I did this last year, when I took out quite a large sum of money (for an financial emergency). It was a bad idea for 3 reasons. Firstly, my investment was doing great and I had made a lot on my principal, so I probably should have left it there. Secondly, I was taxed on it. And thirdly, the money got added to my earned income for this year, thus increasing how much I had to pay in income tax. Brutal. My TFSA on the other hand doesn’t come with any of these many potential burdens, making it the ideal savings vehicle between the two.

Furthermore, as my previous experienced has proved, having money locked in, then getting taxed on it when taken out, wasn’t the best situation for me. If another financial emergencies arises, It is a lot more beneficial to have access to my money quickly without the fear of any tax penalty overhanging.

Since it was introduced in 2009, the limit to investing into your TFSA has now increased to a maximum of $15,000 (A new $5,000 can be added each year). If you do not fill up the $5,000 in space each year, it carries forward. Are there any more reasons you need convincing on?  I hope I spurred my friend on to at least consider it as a possibility.

She has a great, secure job and with her advancing in her career and coming into a higher tax bracket in the not to distant future, the TFSA makes a lot of sense, since it would be ideal place a portion of her earnings away from being taxed. The key here is to start small, with automatic deposits into a TFSA from your bank account on pay day. You won’t miss I thing. However, sorry folks, but the TFSA is only available for us Canadian residents over the age of 18. We gotta have something though…it’s cold up here!

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