Saturday, November 15, 2008

Tax Free Savings Accounts

Making the Tax-Free Savings Account fit for your life

In January, 2009, Canadians will have a new tax-free option for saving – the Tax-Free Savings Account (TFSA). TFSAs are a flexible investment vehicle into which you can make non-deductible contributions (up to $5,000 per adult in 2009) that will grow and can be withdrawn without incurring taxation. Withdrawals can be made at any time for any purpose. Unused contribution room can be carried forward indefinitely and any amounts withdrawn in a year will be added back to your contribution room in the following year.

So, how you use your tax-free TFSA dollars is totally up to you. But it’s a good plan to ‘fit’ your TFSA investment uses to your life stage. Here are some tips.

Young adults and young families
  • Save for emergencies and large short term expenses -- like a vehicle, vacation or home down payment without having to liquidate investments and paying taxes on the income.
  • Save for a home – in addition to or in place of the RRSP Home Buyers Plan.
  • Save for education – in addition to or in place of non-registered savings, the RRSP Lifelong Learning Plan or RESPs.
  • Save for your children – as a parent, you retain control of TFSA funds and when to disburse them.
  • Save to start a business – TFSAs are a tax-effective way to save the initial equity you need and can be used as security for bank financing.
  • Save for retirement – in addition to your RRSP contributions.

Mature adults

  • Save for emergencies, large short term expenses and retirement, in addition to RRSPs.
  • Save your tax refund – contribute your RRSP tax refunds to your TFSA.


  • Save for emergencies and large short term expenses.
  • Shelter excess income from future taxation – if your combined retirement income (from RRSPs, pension, OAS and CPP) is more than you need to live on, build up a non-taxable reserve in your TFSA.
  • Build retirement savings after RRSPs – you can’t contribute to an RRSP after age 71, but you can still invest in your TFSA.
  • Build a tax-free inheritance for children – a TFSA can be transferred to a surviving spouse/common-law partner without affecting their TFSA contribution room. On the death of the second spouse, the children may inherit the total amount tax-free.

Your professional advisor can help you make the most of your TFSAs and other investments, at every life stage.

John Scholl B. Mathematics, CGA, Wealth Management & Financial Planning Investors Group
200 - 24 Queen Street East, Brampton, Ontario L6V 1A3
( Tel. : (905) 450-2891 X529
( Toll Free: (866) 799-2223
( Cell: (416) 731-3660

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