Tax Free Savings Accounts (TFSAs) are a popular and simple way to save money. This article will explain what a Tax-Free Savings Account (TFSA) is and the benefits of using one.
What is a Tax-Free Savings Account (TFSA)?
A TFSA is an account that allows individuals to save and invest money in a tax-free environment, including capital gains and income. TFSAs are available in several countries across the world, including Canada, where they were introduced back in 2009. Here in Canada, any individual that is a Canadian resident, who has a valid SIN, and who is 18 years of age or older, is eligible to open a TFSA.
Benefits of using Tax-Free Savings Account (TFSA)
Tax-free growth: Arguably the most important, TFSAs give you the ability to grow your investments and savings without incurring taxes. Income, dividends, interest, or capital gains generated within the account don’t get taxed.
Tax-free withdrawals: When the time comes to withdraw from your TFSA, you don’t pay taxes on the amount you take out. This tax-free advantage allows people to be prepared for unexpected expenses and other regular financial obligations.
Unused contributions: The CRA sets an annual contribution limit for TFSAs. Any unused contribution room carries forward, meaning you might have more room in certain years.
Investment options: TFSAs offer a wide range of investment options. This includes savings accounts, GICs (Guaranteed Investment Certificates), stocks, bonds, mutual funds, ETFs (Exchange-Traded Funds), and more. This investment flexibility can help you plan for short-term and long-term wealth growth.
No age restrictions: From the day you turn 18-years-old, you begin earning TFSA contribution room regardless of your employment status. You can deposit and withdraw from your TFSA at any point throughout your life.