A Tax-Free Savings Account (TFSA) is still a relatively new savings option.
Build your savings, tax-free
Introduced in 2009, TFSAs are flexible, registered, general-purpose savings plans designed to help you reach your short and long-term goals. The investment income you earn in a TFSA is – you guessed it – tax-free. So a TFSA is a great way to shelter your savings, and build them up over time.
Given the flexibility and simplicity of TFSAs, they are a smart choice for any number of savings needs. For example, they are a great option if you are:
- Looking for a safe place to put extra savings. Contribute up to $5,500 every year.
- Building a rainy day fund. You can withdraw your money when you need it, according to the term you’ve selected.
- Trying to reach specific savings goals. When you’ve reached your goal, the money you withdraw is not taxed, and you can re-contribute to your TFSA once you’re ready to start again.
- Looking for a way to complement your RSP. If you have maximized your RSP and want an extra boost to your retirement savings.
- Retired, but want to keep saving. You can keep contributing to a TFSA into your 70s, 80s, 90s and beyond! There is no upper age limit when it comes to contributing to a TFSA. In fact, many retirees are directing any RIF payments in excess of their current living requirements, and depositing these to their TFSAs.
TFSAs from Oaken also provide you with security and peace of mind, since they are eligible for Canada Deposit Insurance Corporation (CDIC) coverage, up to applicable limits. Plus, we offer some of the best rates available.
While the annual contribution room for a TFSA is currently $5,500 (effective from January 2016), you can also carry forward any unused contribution room from previous years, as well as reinvest any withdrawals made in the past. This means that if you have maximized your contributions since TFSAs were first established, you will only be able to contribute up to $5,500 in 2016. But on the other hand, if you still have existing contribution room available, you will be able to add that to the $5,500 limit for 2016.
You’ll also still be able to take advantage of an additional $4,500 contribution room that was made available for 2015, since the limit of $10,000 for that particular year will remain in effect. To give an example, let’s say you maximized your contributions for every year except for 2015, when you only added $3,000 to your account. You would then have $7,000 in unused contribution room (the $10,000 limit for 2015, less your $3,000 contribution). As such, in 2016 you would be able to contribute up to $12,500—the $7,000 in unused room, plus the 2016 limit.
Quick facts about TFSAs
Since TFSAs are still fairly new in Canada, there are some ins and outs to them that you may not know. Here’s a quick overview:
- You can contribute up to $5,500 per year.
- If you didn’t contribute in previous years, you can carry that amount forward. Note that for 2009-2012 the contribution limit was $5,000 per year, for 2013-2014 it was $5,500, and for 2015 it was $10,000.
- You can withdraw your money at any time, but if you have no contribution room available in a given year, you have to wait until the next calendar year to replace any funds you’ve withdrawn.
- Any amount you have withdrawn in a given year is added back to your contribution room for the next year.
- You can have TFSAs at multiple financial institutions, just make sure your combined contributions do not exceed your personal limits.