New Years Resolution OPEN TFSA

Managing your Money

I resolve to open a TFSA

It’s coming up to the time of year for making resolutions and a good one for almost anybody looking for financial security – and some solid tax breaks, too – is to open a Tax-Free Savings Account (TFSA).

TFSAs will become available to Canadians in the 2009 taxation year. This new tax-free option is a flexible, general-purpose savings vehicle into which you can make an annual non-deductible contribution (up to $5,000 per adult in 2009) that will grow without incurring taxation.

Withdrawals can be made at any time for any purpose and are also exempt from taxation.

Unused contribution room can be carried forward indefinitely and any amounts withdrawn in a year will be added back to your contribution room for the following year.

Here are just a few ways that you can put a TFSA to the best use for you:

• A source of emergency funds The rule of thumb is to set aside an emergency fund equal to three months of your after-tax income. A TFSA gives you an easily accessible source of tax-free emergency money that can be paid back to your TFSA without penalty once the ‘emergency’ is over.
  
• An addition to your RRSP If you are in a lower tax bracket, you may have a small amount of RRSP contribution room that will not deliver much of a tax benefit. And if you need to withdraw some RRSP dollars for emergency use, you’ll pay a tax penalty. A TFSA will allow you to have tax-free emergency funds on hand and you can later move your tax-free TFSA funds into your RRSP when your income is higher and the RRSP deduction is more valuable.
  
• Saving for a home Under the Home Buyers Plan (HBP) you can withdraw money from your RRSP for a down payment – but there is a $20,000 limit on withdrawals, a fixed repayment schedule and strict eligibility requirements, including meeting the definition of ‘first-time home buyer’. Alternatively, you can choose to save for a home through your TFSA and still enjoy the tax-free benefits without the restrictions of a HBP.
  
• Saving to start a business A TFSA can be a tax-effective way to save the initial equity required to start a business. And unlike RRSPs, a TFSA can be used for security when obtaining bank financing.
  

There are plenty of other TFSA strategies that could work for you. Your professional advisor can help you make the best choices for your situation.

This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

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