A Tax Free Savings Account (TFSA) is great option for a wide range of savings goals - not just long-term investments and retirement. All Canadians aged 18 or older can open a TFSA and make contributions whether or not they have earned income.
Here are four reasons why a TFSA could be a great fit for your personal savings goals.
You want to create a personalized, tax-sheltered investment
Any investments in a TFSA are tax-sheltered. This means that you don’t pay taxes on interest, dividends, or capital gains from your investments. You can also build a TFSA that suits your investments style with a wide range of options, like:
- Guaranteed Investment Certificates (GICs)
- Mutual funds
- Exchange Traded Funds (ETFs)
- Savings accounts
You want a flexible savings plan
TFSAs can be more flexible than other investments.
You can withdraw as much as you want, any time, without paying tax on it. There may be some exceptions, depending on the types of investments you hold in your TFSA.
Overall, though, a TFSA gives you easier access to your money, which makes it perfect for saving up for short-term goals or creating an emergency savings fund.
You can carry also forward any unused contribution room, and when you make a withdrawal you can re-contribute that amount the following year. That way, you don’t have to worry about losing the opportunity to add to your tax-free savings.
You want to supplement your income during parental leave
Worried about covering your expenses during parental leave? A TFSA can help. You can make withdrawals from your TFSA, tax-free, to supplement your income. Worry less about money and spend more time with your little one! You can always re-contribute later, when you start working again.
You’re already contributing the full amount to your RRSP every year
Why miss out on tax-sheltered savings just because you've already contributed to your RRSP? Use a TFSA to set aside money and potentially earn great interest on it. That way, you have savings that you can access earlier than retirement. Also, you could delay taking money out of your RRSP (which you would pay tax on) if you have a TFSA to draw income from when you retire.