Great Benefits to Opening a Tax-Free Savings Account (TFSA)
A Tax-Free Savings Account (TFSA) can be an effective way to save for the future because the growth on your savings isn’t taxed. Here are some additional reasons why opening a TFSA is a sound financial investment:
- If you are looking for a flexible way to save, a TFSA could be a good option as it allows you to carry forward any unused contributions to subsequent years. In addition, you are able to credit any withdrawals that you have made back into the TFSA to enable you to benefit from the maximum savings potential.
- You may already be investing the maximum amount possible into an RRSP. In this case, investing money into a TFSA allows you to draw income from it when you retire, without paying any tax on the withdrawals.
- If you are on a low income and therefore receive money from the federal government such as the Canada Child Tax Benefit, your TFSA will not affect the amount of benefit that you receive.
- You should bear in mind that you have already paid tax on the funds that you invest into your TFSA. Therefore, if you expect that your tax rate will have increased by the time that you withdraw your funds, you will have paid fewer taxes in total. Remember that the opposite applies for your investment in a RRSP.
- A TFSA offers you the option of keeping investments that would usually be subject to a higher rate of tax sheltered, as you do not pay tax on the earnings.