Is it already part of your investment strategy? Are you fairly familiar with it but not quite convinced? Are you interested but haven’t had time to explore this solution?
Regardless of your level of knowledge of the TFSA, you probably know that it’s a way to save on a tax-free basis. The TFSA is definitely an attractive tool that you should consider when it comes time to put aside savings in order to finance projects at various stages of your life. And it’s also an excellent way to round out a retirement savings strategy and to improve the return on your assets. But you need a certain understanding of the TFSA to derive maximum benefit from it.
The TFSA – an addition to your financial strategy
The Tax-Free Savings Account, referred to as the TFSA, was created in 2009, enabling any Canadian resident who has reached the age of majority and has a social insurance number to save on a tax-free basis. Investors who opt for a TFSA can increase their assets and make withdrawals without being taxed, which will cause their savings to grow faster. This is a distinct advantage over other investment vehicles. The TFSA is also a flexible tool: you can make contributions or withdrawals at any time, regardless of the purpose or the timing of your project; and various types of investment are eligible, including mutual funds. So it’s the ideal tool to help you save.
The TFSA: a cmplement to an RRSP
The TFSA is an excellent savings solution that will help you make your projects a reality, but it’s also a tool that complements a Registered Retirement Savings Account (RRSP). This complementary aspect takes different forms. It is based mainly on the TFSA’s flexible approach to withdrawals, whose impact is reduced because of their tax-free status. In addition, you can redeposit the amounts you withdraw and maintain all your contribution room. And withdrawals do not affect your government benefits or tax credits in any way 1.
The TFSA is also a fiscally advantageous vehicle that enables you to continue saving for retirement if you have reached your RRSP contribution limit. Moreover, it’s possible to contribute to a TFSA throughout your lifetime, in contrast to an RRSP, which you must convert into a Registered Retirement Income Fund (RRIF) by December 31 of the year when you turn 71. In short, it’s wise to include the TFSA in your financial planning for retirement. But it’s important to understand the distinctive features of the TFSA and the RRSP to establish the right strategy.
A TFSA in your life
Adding a TFSA to your financial strategy is undeniably beneficial, regardless of your income, objectives or stage of life. It will help you reach your short-term goals, such as saving for a trip; your medium-term goals, such as saving for a down payment on a house; and your long-term goals, such as financing your retirement. Discover how a TFSA can help you achieve your objectives.
| Objectives and advantages of a TFSA |
||
|
|
Advantages of a TFSA | |
Acumulate an emergency fund |
Save on a tax-free basis. Withdraw funds without being taxed. |
|
Finance a short-term project and start your retirement planning |
Increase your assets and make withdrawals without being taxed, to reach your goal more quickly. |
|
Finance a major project while planning for your retirement |
Withdraw and recontribute funds without reducing your contribution room and without paying any tax. |
|
Contribute actively to the financing of your retirement |
Continue saving to increase your retirement income, for example if you have maximized your RRSP contributions. Increase your assets on a tax-free basis. |
|
Retire |
Obtain income without reducing the amount of your pension. Continue saving. |
|
Would you like to enjoy the benefits of a TFSA or a retirement savings solution? Contact the Advisors and Mutual Fund Representatives at FERIQUE Investment Services. They would be pleased to help you.