Tax Free Saving Account: TFSA contribution room should be maximized by all.
The relatively new TFSA is an account that encourages saving and has tax benefits as well as a designated TFSA contribution room. Any tool that allows for you to keep more money in your own pocket is a good tool!
Every year you have a limited amount of money that you are allowed to put into this type of account. The main benefit of putting money into this account is the tax benefit. This benefits you in that you don’t have to pay tax on your gains from your investments (for example investment income, interest, capital gains, dividends etc.).
You also don’t have to pay tax when you take the money out of the TFSA. This is a unique feature as some other tax sheltering accounts you do have to pay tax when you withdraw the funds.
Since you don’t have to pay tax, you’ll have even more money in your account and can benefit further from the magic of compound interest.
It is important to note that your contribution to your TFSA is not tax deductible for income purposes.
The Tax Free Saving Account was introduced by the Canadian government in 2009 as a way to encourage Canadians to save more money. The contribution limit or the amount you can put into this account without incurring penalties has changed several times, here is a recap of TFSA contribution room:
- 2009 – 2012 –> $5,000
- 2013 –> $5,500
- 2014 –> $10,000
- 2016 –> $5,500
The reason the historical background is valuable is because previous year’s contribution room is available to you if you were over 18 during that year, a Canadian resident and did not use the full allocated amount at that time.
Watch today’s episode of LimorTV for more details and watch outs on your TFSA!