Tax-free savings account

Tax-free savings account (TFSA) is a savings account that enables Canadians to avail tax benefits on their savings. They can put in their investment income, namely the income from dividends, interest, and capital gain, into this account and save it from taxes. Similarly, the account holders will not be taxed for withdrawals from this account. Considering these factors, TFSA emerges as a smart investment option. But this does not end here as there are numerous other benefits of investing in this account. Let’s explore these benefits:

  1. You can plan your retirement with this long-term saving

When it comes to long-term savings for retirement planning, TFSA makes a reliable option. It is comparable with RRSP, which is regarded as one of the best retirement plans. A wise investor can pick up both the accounts, particularly if he has already contributed the maximum to RRSP and wants to plan a supplement retirement income. Those who are post-retirement age and can no longer contribute to RRSP can avail the benefit if TFSA for investing and growing their income. Moreover, TFSA has no impact on the Old Age Security payments while RRSP is likely to result in clawbacks on them.

  1. It enables you to save up for big buys during your working years

Even though TFSA is basically meant for long-term saving, you can plan to use up the investment for making a large purchase during your working lifespan. These could include purchasing a house, buying a car or taking an expensive vacation. Earlier, large cash savings were subjected to a marginal tax rate on any interest earned, which seemed like a discouraging factor.

  1. You can use it as an emergency fund

Another benefit that comes with holding a TFSA account is that it can be used as an emergency fund. Since the withdrawals from the account are tax-free, you can take out money from it without any tax worries. This is one way to save up money for emergencies as well as planned spending.

  1. It is a highly flexible saving option

If you are looking for a super-flexible savings plan, then TFSAs are just right for you. While you may not contribute anything to this account in a particular year, the unused contribution room can be used in subsequent years. Also, you have the option to open more than one such account even though the maximum contribution limit remains the same for all of them summed together.

  1. TFSA is particularly advantageous for lower-income households  

These accounts make a reliable investment opportunity for lower-income households as even students, retirees, and people who are self-employed can invest in them. So there are no income criteria for opening up the account. Even if you are receiving money from a government program on the basis of your income, the amount will not be affected by TFSA. For instance, the benefits and credits that you receive from the Guaranteed Income Supplement (GIS) and Canada Child Tax Benefit will stay the same.  

Considering the benefits that you may get by investing in a TFSA, it is advisable that you do so to smarten up your long-term saving program. The best way to do so is meet an expert and experienced investment advisor who can help you to ideate a savings plan that is just right to meet all your long-term and short-term investment goals. At the same time, putting in regular, small amounts in the TFSA is far more convenient as compared to depositing the contribution limit in a lump sum. Here too, a saving and investment advisor can help you in chalking out a plan that enables convenient savings on the basis of your regular income and expenditures.


This post contains sponsored links from Sun Life Financial.

Spread the love