TFSA (Tax-Free Savings Account)
The 2008 Federal Budget introduced the Tax-Free Savings Account (TFSA), the single most important personal savings vehicle since the RRSP. The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. Paragon Financial is set up to open Tax-Free Savings Accounts for our clients.
How the TFSA Works:- Starting on January 1 2009, Canadians aged 18 and older can save up to $5,000 every year in a TFSA.
- Contributions to a TFSA will not be deductible for income tax purposes but investment income, including capital gains, interest and dividends earned in a TFSA will not be taxed, even when withdrawn.
- Unused TFSA contribution room can be carried forward to future years.
- You can withdraw funds from the TFSA at any time for any purpose.
- The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room.
- Contributions to a spouse’s TFSA will be allowed and TFSA assets can be transferred to a spouse upon death.
- TFSA may hold the same investments as a RRSP plan. This would include mutual funds, segregated funds, stocks, bonds, GICs, etc.
Strategies:You may dollar cost average into the TFSA. One strategy is to put $415/month into the TFSA so you can slowly enter into the market, ideally timing potential market bottoms.
TFSA with guarantees: Both GIC’s and Segregated funds allow you to invest into the TFSA with guarantees. GIC’s allow you to lock-in an interest rate while protecting your principal, and Segregated funds allow you to participate in market gains while also protecting your principal.
Double tax savings: If you buy a bank stock, or any stock that pays a dividend in the TFSA, you get to participate in tax-free income (dividends) as well as tax-free growth (capital gains) all at the same time.
If you would like more information about the TFSA, please contact your representative at Paragon.