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Four ways a TFSA can help you meet your financial goals

Are you struggling to meet your short-term financial goals? If so, consider a Tax Free Savings Account (TFSA). A TFSA isn’t just for long-term savings and retirement. As the cost of living and general expenses increases each year, a TFSA can help you meet your ongoing savings goals as well, such as saving for

  • Short-term and mid-term goals
  • Emergency savings
  • Living expenses during parental leaves

Here’s how.

TFSA Suits Canadians 18+

If you are looking for a faster way to grow your savings, a TFSA could be the answer.  All Canadians aged 18 or older may open a TFSA account, and make after-tax contributions whether or not they have earned income.  Investments within a TFSA may include:

  • Cash
  • GICs
  • Mutual funds and ETFS
  • Stocks
  • Bonds

Any eligible investments within a TFSA are tax-sheltered, and grow tax free, while withdrawals aren’t taxed nor are they included in your taxable income. As of 2017, if you’ve never contributed to a TFSA, you have $52,000 of unused contribution room. [SOURCE]

Suits Short to Mid-Term Goals

If your financial plan includes goals you’d like to reach within the next two to five years, consider a TFSA. Fixed rate savings and shorter term GIC rates can help you grow savings for short- to mid-term goals such as saving for a new car, wedding, down payment, or even a big trip.

For example, Meridian’s 3 Year Escalator GIC for TFSAs offers a better rate than a regular savings account, and a progressively higher interest rate in each year of the three-year term, and you earn that interest tax-free. It also gives you the option to redeem it on each anniversary date.  

Build Emergency Savings

TFSA accounts can also be a good way to build an emergency fund to deal with unexpected job losses or unforeseen expenses, such as costly car repairs, furnace repairs or replacements, or unexpected medical bills. 

Keep these funds within the cash portion of the TFSA. This way, you can access the money when and if you need it. At the same time, you’ll earn interest on that cash. For example, Meridian’s Good to Grow High Interest Savings Account (HISA) can be held within the TFSA, and it currently earns a rate of 1.50%.  

Supplement Parental Leave Benefits

If you’re concerned your maternity benefits or parental leave benefits won’t support your family while you’re on leave with your new addition, consider supplementing your benefits by withdrawing from your TFSA.

TFSA withdrawals not taxable, and don’t count for any federally “income-tested” benefits, according to the Canada Revenue Agency.

Once you return to work and have additional income, you may choose to make TFSA contributions once again so your money can continue to grow tax-free. It’s important to understand that your TFSA contribution room is calculated using your cumulative TFSA room since 2009, less your contributions, plus your withdrawals.  [SOURCE]

Let’s say you contributed the maximum each year from 2009 to 2017, and withdrew it all in 2017 to supplement a maternity leave. You must wait until the following year – 2018, to replace your total $52,000 TFSA withdrawal, plus make your 2018 contribution. [SOURCE]  And don’t worry if you can’t re-contribute the whole amount in one year, since TFSA room can be carried forward to future.

TFSAs are flexible accounts for Canadian adults with a variety of savings goals. To learn more about how a TFSA may help you meet your own savings goals, visit your local Meridian Credit Union branch to speak to an advisor today.