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RISING WOMEN EXPERT
ADVICE...
Are “Tax Free Savings Accounts” a smart
and simple way to save?
Winter has arrived and once the hustle and bustle of Christmas dies down the
worst part of the year truly begins. Tax season arrives along with the cut
off time to make your final investments for the year. These days, we can all
use a new way to same more money. The good news is now you can earn faster
and keep more of your savings with a Tax Free Savings Account (TFSA).
With a TFSA, you can save up to $5,000 per year in a registered account.
Your earnings are not taxed, whether they’re from interest income, dividends
or capital gains. Unlike RRSPs, you don’t pay tax on your account balance or
any withdrawals, calculations for income tax and benefits such as GST and
Child Tax Credits or Employment Insurance, and Old Age Security programs are
not impacted. Furthermore, your contribution room is restored when you make
a withdrawal and any unused contribution room can be carried forward to
future years.
When it comes to planning for the future, almost anyone can benefit from a
TFSA. You can start at age 18 and keep contributing long after you retire,
which makes it a great plan for long-term savings. As your income levels and
savings goals change, your TFSA account is a safe way to ensure you have a
consistent vehicle to save, while having access to the funds when you need
them.
Not sure if you should invest in a TFSA or an RRSP? In general, an RRSP
offers a tax deduction when you first make a contribution; in comparison, a
TFSA provides a tax benefit at the end, because you pay no tax on
withdrawals. Earnings within TFSAs are tax-sheltered while those within an
RRSP are tax-deferred, which in both cases means you'll reach your savings
goals faster.
Your TFSA can help you save for many events throughout your lifetime. For
example;
- Saving for large purchases such as cars or down payments for a home;
- Rainy-day funds or education funds;
- Saving for a health-care fund for after your retirement to cover costs not
covered by the provincial government.
TSFAs are great to have short or long term however many experts say having
both accounts working for you at the same time can maximize your savings,
both plans have important tax advantages.
Danielle Miller |
