Advantages of a Tax-Free Savings Account
Advantages of a Tax-Free Savings Account (TFSA)
The Tax Free Savings Account (TFSA) is a special type of registered account that allows Canadians to get tax free incomes from their investments. It was introduced on January 1, 2009 by the Canadian government with a view to giving flexibility in the investments of the Canadian residents. The investors simply get tax benefits from this account which means they don’t need to pay taxes for the capital gains or other incomes from their investment of up to $5500. People are eligible to open these accounts only if they are Canadian residents aged 18 or more.
There are some fruitful advantages of a Tax Free Savings Account. The key points being –
- The incomes generated by the investments and their withdrawals are totally tax free.
- TFSA offers other types of investments besides cash such as stocks, Guaranteed Investment Certificates, mutual funds, etc. unlike many other investments.
- There is no fixed limit of incomes on contributions.
- The unused parts of the investment (In the $5500 limit) can be continued in the following years without upper limits.
If you think about these advantages and compare these to RRSP (Registered Retirement Savings Plan), you will find that Tax Free Savings Account is far better than RRSP as it doesn’t apply taxes on withdrawals and incomes from the investments. A TFSA includes the investment options that RRSP has and additionally includes public trade shares, debt obligations, warrants, and other special options too. TFSA doesn’t have any effects on federal benefits and there is no lifetime investment limits. If you are eligible for TFSA once, you are eligible for the lifetime.
There is no limit on the ways you can spend the amount of money earned from a TFSA account either. You can either keep this money for future use when you would go for retirement, or you can set some short time savings plans to buy a new car or become a tourist. Some savings schemes offer very competitive rates on the whole amount. These interests are usually calculated on the closing balance daily. You can avail the automatic deposit options and in fact, your contribution slot is never lost even if you withdraw the whole amount. You have to wait until the next year to contribute again though. So, as a Canadian resident and aged person, it is strongly suggested that you open a Tax Free Savings Account as soon as possible and enjoy the benefits it has to offer.
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