What are the benefits of a TFSA?
In simple terms, potentially higher returns than a savings account and you don’t pay income tax on the earnings.
- Greater choice of investments.
- You can withdraw and then replace the money (subject to certain restrictions, talk to your advisor).
- No tax on the growth. EVER!
- Can be transferred to another advisor if required (Be careful with the investments inside. Those restrictions still apply like with your RRSP).
Let’s look at an example:
We have deposited $5,000 per year over 5 years. It has had some growth. For argument’s sake, the total is now $22,000. We need $20,00 to buy a car in the fall and expect a bonus at work in the new year that will allow us to replace the $20,000. We make an annual contribution in December of $5,000 based on the current allowable limits.
In September, we withdraw $20,000 and buy the car. In December, we deposit $5,000. The following January, we replace the $20,000 we withdrew for the car.
What is the net effect?
- No income tax on the withdrawn money.
- No penalties other than whatever may have been involved with the disposition of the assets. (Commissions, deferred sales charges. Same as in your RRSP or non-registered monies).
- Balance is now approximately $27,000 and we own the car.
Take the time to talk to your financial advisor about the benefit of a TFSA for your personal situation.
I have to apologize to my “American Cousins” because I don’t know the equivalent in the United States. You too should always seek the advice of your financial advisor when making decisions about your investments and financial planning.
Make it a great day!
P.S. What am I thankful for today? I’m thankful for financial advisors! I’m thankful for my LegalShield membership when I need clarification on tax matters. I’m thankful for every opportunity to learn.
What are you thankful for today?
Disclaimer: I was formerly in the financial services industry and have since made a change and let my licenses go. This is strictly opinion and not to be considered advice. You need to talk to your personal financial advisor regarding your particular situation.