What is a TFSA?
A Tax-Free Savings Account (TFSA) permits you to save and grow your wealth on a tax-free basis. This account may be used for virtually any financial goal: to hold a rainy-day fund, save for a major expense or even to supplement retirement savings.
Despite a slow start, the TFSA has grown in popularity among Canadians seeking a tax-efficient way to grow their wealth.
How TFSAs work
Contributions to a TFSA are not deductible for income tax purposes. However, you may withdraw any amount from your TFSA tax-free at any time. This includes contributed money and any capital gains, interest or dividends. These withdrawals will not affect any income-tested government benefits.
While there is no TFSA withdrawal limit, any money you take out of your TFSA will be added back to your contribution limit, but only after the start of the following calendar year (unless you still have contribution room left over).
TFSA eligibility
Any individual over the age of 18, who is a Canadian resident and has a valid social insurance number (SIN) may open a TFSA.
Investing in TFSA
The TFSA is a highly flexible account and the Canada Revenue Agency (CRA) allows you to hold a wide variety of investments in a TFSA, such as:
Cash: This includes uninvested money, as well as guaranteed investment certificates (GICs) and money market funds.
Mutual funds: These are groups of stocks and/or bonds (often containing hundreds of assets), which have been selected by investment managers. They give your portfolio considerable diversification, among other benefits.
ETFs: These are similar to mutual funds, except they are traded on stock exchanges, often have less ongoing involvement from investment managers and usually come with lower management fees.
Bonds: These are loans to governments and companies, and so, while the potential returns they offer are usually lower than what you might get with stocks, the risks are usually less.
Stocks: These are shares in publicly traded companies (listed on designated stock exchanges).
Small businesses: In some cases, you may hold certain shares of small business corporations.
Contribution limits
The TFSA is subject to contribution limits, which accumulate over time. In 2009, the initial limit was $5,000. This limit has been indexed to inflation, rounded to the nearest $500. You can find your personal current contribution limit by logging into the CRA “My Account” portal.
Invest in a TFSA with IG
Effective financial planning goes beyond simply growing investments. The IG Living Plan takes into account every aspect of your financial life including saving with a TFSA. An IG advisor will be able to draw up a robust plan that incorporates all of the benefits of a TFSA. They’ll help you manage the risks of investing, keep your savings intact for longer and create a withdrawal plan to meet your financial goals.
More on TFSAs
Getting started is easy
Here’s what to expect from your initial conversation with an IG advisor; they will:
Understand what’s important to you: your values, concerns and goals.
Share our approach to financial planning, which goes beyond investments, to include tax efficient strategies, risk reduction and more.
Answer any questions you may have and establish our next steps.