Mainstreet Credit Union - What is a Tax Free Savings Account?

Mainstreet Credit Union - What is a Tax Free Savings Account?

Written by: Tracy Drouillard

What is a TFSA?

A Tax Free Savings Account is a flexible savings plan that can be used for any purpose over your lifetime! You can hold different investments under the TFSA contract, including:

  • Cash
  • Stocks
  • Bonds
  • Mutual Funds
  • Guaranteed investment certificate (GIC)/term deposits

TFSA’s are great because contributions are after-tax funds, meaning that the income/interest earned under the TFSA is tax-sheltered. You do not have to claim this income on your income taxes and the savings grow tax free.

Who Can Contribute?

The only qualifications you must meet in order to contribute to a TFSA are:

  • Be Canadian resident
  • At least 18 years old
  • Have a social insurance number (SIN)

TFSA Contributions

There are two different contribution limits that you must adhere to when you have a TFSA – this is your annual contribution limit (how much you can put into your TFSA each year) and your lifetime contribution limit (how much you’re allowed to put into your TFSA in total).

Annual Contribution Limit

Each year, every Canadian over 18 receives the same amount of TFSA contribution room:

  • 2009-2012 – $5,000
  • 2013-2014 – $5,500
  • 2015- $10,000
  • 2016-2018 – $5,500
  • 2019-2022 – $6,000
  • 2023 – $6,500
  • 2024 – $7,000

Any unused contribution room will carry over into the next year.

Lifetime Contribution Limit

Accumulated annual contribution room for every year you were 18 or older:

  • 2024 – $95,000

To check what your TFSA contribution room is, login to Canada Revenue Agency (CRA) website. But remember, if you exceed your limit, there is a 1% penalty tax on your highest excess amount each month.

TFSA Withdrawals

You can withdraw from your TFSA at any time, for any purpose! Additionally, any withdrawals you make from your TFSA are not taxed and you receive a dollar-for-dollar re-contribution credit effective January 1of the following year

Estate Planning with a TFSA

For estate planning purposes, if you name your spouse or common-law partner as a ‘successor holder’, this permits them to take over your plan without affecting their own TFSA contribution limits. You also have the option to name a ‘beneficiary’, meaning that they will be the one to receive the money from your plan in the event that you pass away. It is important to note that in this situation, this money is no longer part of a TFSA.

Now that you know a little bit more about Tax Free Savings Accounts, book an appointment with a Mainstreet Advisor to start yours today!

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