TFSA stands for “Tax-Free Saving Account.” The TFSA program was introduced in 2009 by the Canadian government to encourage individuals to save money. As the acronym states, your money will not be taxed, regardless of how much you make with interest or investments. This will heavily benefit individuals who save money on a TFSA high-interest account or a TFSA investment account. Any gains made from these accounts will not be taxed. Imagine how good it will feel when all the income you made from your stocks is tax-free.
How does it work
Unlike a regular savings account, there are limits governing how much you can put in and take out of a TFSA. This is known as the contribution limit and it varies from year to year. Overcontribution will lead to a penalty that taxes 1% of the excess money every month until it is withdrawn. The current 2019 lifetime contribution limit for someone who has never had a TFSA is $63,500. If you’ve deposited money throughout the years, subtract that number from $63,500 and you will have your maximum contribution limit.
Why you should open one
TFSA accounts are amazing for investing. You can invest in stocks, bonds, real estate, mutual funds, and more. All gains that you make from your Tax-free investment account will not be subject to any taxes. This is incredible for people who would like to make long term investments. TFSA accounts are also quite flexible and accessible whenever you need to withdraw money. This will benefit individuals who might want to save for a short-term goal such as buying a car or an emergency fund.
Where can you open a TFSA
Most banks will have the option to open a Tax free savings account. TD, CIBC, RBC, and every Canadian bank will have this option. Make sure to compare associated fees. Also, brokerage firms such as Wealthsimple and Questrade will offer this account when you register to become an investor. This is one of the best ways to utilize the TFSA. Your future is in your hands!
