Canada Life Tax-free Savings Account (TFSA)

The savings account is adaptable, so you can use it to save for a short-term goal, like saving for a family trip, or you can also use it to save for your retirement.

Tax-free Savings Account (TFSA)

Let your money bring your goals closer

Access your savings for when you need it and for what you want.

Flexible

You can use the money for your short and long-term goals.

Access your money tax-free

Your money grows in your account andis tax-free when you withdraw.

Get contribution room back

When you withdraw money, that room gets added back the following year for you to use it again.

What is a tax-free savings account?

It is an account where you can place investments like mutual funds or segregated funds. The savings account is adaptable, so you can use it to save for a short-term goal, like saving for a family trip, or you can also use it to save for your retirement. The RRSP, on the other hand, is ideally used for long-term investing.

How does the policy work?

  • If you are eighteen and above and have a valid Social Insurance Number (SIN), you can open a Tax-Free Savings Account with assistance from an advisor who can set you up with investments that meet your specific goals.

  • You can contribute monthly but make sure to stay within the yearly limits, which is $6,000 for 2020. Your contributions will not be deducted for income tax purposes.

  • Your investments will grow tax-free.

  • When you reach your goal, you can withdraw your money tax-free.

  • After you withdraw your savings, your contribution room is restored in the next year.

  • If you skip a year, the unused contribution room rolls over to the following year.

It is a suitable option if you:

  • Need fast and easy access to cash.

  • Started working recently but don’t earn enough money to take advantage ofthe RRSP tax breaks.

  • Have a financial goal in mind.

  • You want your savings to grow tax-free and not be able to pay taxes on investment income.

  • Are looking for an investment account to complement your Registered Retirement Savings Plan.

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How to open a Tax-Free Savings Account?

There are three main criteria to open a Tax-Free Savings Account:

  • You have to be 18 years or older.

  • You must have a Canadian Social Insurance Number (SIN).

  • You must be a resident of Canada.

How much cash can you put in a Tax-Free Savings Account?

The Canada Revenue Agency (CRA) allows a certain amount of contribution room each year. The contribution room is cumulative; you can continue contributing as your total contribution room grows annually. For instance:

The annual contribution limit for 2020 - $6,000

Total cumulative contribution room available in 2020 - $69,500

You can have multiple Tax-Free Savings Accounts – remember the annual limit applies to the total amount you contribute, not to each policy individually.

Want to withdraw money from your Tax-Free Savings Account?

You can put the entire amount back into your account whenever you want and still save the maximum amount each year after withdrawing money from your savings account.

  • You have the choice withdraw as much money as you want

  • The amount you withdraw is added to your contribution limit the following year.

Do you need a Tax-Free Savings Account or an Registered Retirement Savings Plan?

A TFSA and an RRSP do the same thing; both policies allow you to save money for the future, but in different ways. Depending on your needs, having both can help you achieve your specific goals.

  • What if you go over your limit?

  • What is the TFSA deadline?

  • Do I have to report my TFSA on a tax return?

  • What if you’re no longer a resident of Canada?

  • What’s the difference between a workplace TFSA and an individual one?

  • What is the TFSA deadline?

  • What if you’re no longer a resident of Canada?

RRSP TFSA
How do you start one? Filed your income for the previous year and earned an income If you are a Canadian resident and you’re 18 or older having a valid social insurance number
How long can you contribute? Dec. 31 of the year you turn seventy-one For entire life
What’s the contribution deadline? March 1, 2021,is when you will claim a deduction for the previous year N/A as contributions are not deductible
What’s the contribution limit? The smaller amount of 18% of your earned income last year or 2020’s annual limit of $27,230 plus any unused carry-forward $6,000 for 2020, plus any withdrawals in a previous year and any unused contribution room carried forward from the previous year
What happens if you withdraw money? The contribution room is lost permanently The contribution room is re-added on Jan. 1 of the following year
What happens if you withdraw money? The contribution room is lost permanently The contribution room is re-added on Jan. 1 of the following year
What are the upfront tax advantages? Taxable income is low for the current year None, because contributions are made with after-tax income
What are the future tax advantages? Income earned in your RRSP is tax-free as long as it stays in the plan. Tax is not paid on any income earned in the account or the money you withdraw.
Every dollar withdrawn is taxed at a small tax rate.Tax rate is lower when you’re retired. If you need to use your savings for short-term expenses or emergencies there are no tax implications.
Withdrawals aren’t considered income, so this money isn’t included when the government calculates benefits like Old Age Security, Guaranteed Income Supplements, GST/HST credits and other credits/benefits like the Age Credit.
Conclusion RRSP provide greater short and long-term tax benefits. It is less flexible because you have to pay tax on withdrawals. Less tax benefits but is more flexible because there are no tax implications for withdrawals.

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