January 2013 the annual contribution limit for the TFSA has been increased to $5,500 from the $5,000 per year it has been since the Tax Free Savings Account was introduced.
Since TFSA were made available in 2009, Canadians (18+) have been able to earn tax-free investment income on contributions of up to $5,000 per year.
Any interest, dividends and capital gains earned in a TFSA are not subject to tax. You can put more than just a savings account in a TFSA.
Much like RRSPs (Registered Retirement Savings Plans) it can be a high interest savings account, mutual funds, guaranteed investment certificates or term deposits, shares in companies, and other types of qualified investments.
Unused TFSA contribution room is carried forward and accumulates for future years, so if you haven’t purchased any TFSA (like me), you now have 25,500 available room as of January 2013.
Funds in your TFSA can be withdrawn tax-free at any time for any purpose (make sure you know if there are any fees that may be charged). You can re-contribute withdrawn amounts in the same year but only if you have unused TFSA contribution room. Otherwise you need to wait until the following calendar year.
Income earned in the TFSA and withdrawals do not affect your Guaranteed Income Supplement, your GST credit and other income tested benefits and credits.
So should you buy a TFSA or a RRSP? That’s a common question. Generally TFSA are favoured unless your taxable income now is more than $43,000 and you expect it to be less in the future (retirement). Everyone’s taxable income is different, so a good review of your current income and a guesstimate of your future retirement income needs to be completed.
Finally, don’t rely on your yearly personal income tax notice of assessment to find out how much TFSA contribution room you have. Keep track of it yourself to ensure you do not exceed the contribution room and face stiff penalties and interest.
And as a follow up to my November article called Create A Great Funeral Day, I am co-hosting a funeral planning seminar on Friday January 25 11:30am – 1:30pm at Club Jovial in Ste Anne. Jeannette Brigit, a funeral officiant will join me to present: Your Funeral, Your Way – create your own personalized funeral. It is a free seminar with a light lunch provided. Seating is limited, so for your complementary ticket please contact me!
Happy New Year; Bonne Annee, Godt Nytaar, Gluckliches Neues Jahr
Anni Markmann is a Certified Financial Planner, a Certified Professional Consultant on Aging and Tax Expert living, working, and volunteering in our community. Contact her at 422-6631, annimarkmann@mymts.net or 36 Dawson Road in Ste Anne.