A Tax-free Savings Account  –

A Building Block to Financial Wellness 

Personal wellness takes many forms, including financial stability. One of the building blocks available to creating ongoing financial stability is contributing towards a Tax-free Savings Account (TFSA).  

Being disciplined and putting money into a TFSA every month has long-term benefits. With a TFSA, you have already paid taxes on the funds you deposit. Therefore, you are not taxed when you make a withdrawal. It affords you the opportunity to save money, earn interest and not pay additional taxes on the investment earnings.  

 A TFSA is also a great place to put extra money, such as an inheritance or a bonus, until you have had time to consider how best to use it.  Keeping it in a separate account allows you to be more intentional about spending it on something that is a priority, similar to the concept of having your kids put their birthday money in a separate jar for something special. You can also watch and track how the investment grows and see your windfall working for you. 

Everyone wants to stress less about money. Consider using a TFSA is a way to pay yourself each month and in doing so, take control of personal finances. 

To learn more about how CRA determines TFSA annual contribution room, have a look at these CRA examples. 

To read the full article on TFSA as a building block, please click here.

Benefits of a TFSA

The Tax-free Savings Account or TFSA started in 2009. According to moneysense.ca, even after 10 years “a large number of people still don’t understand what they are or how to use it.” If you find yourself in this category, learning more about a TFSA is well worth your time.

In their article “What is a TFSA?”moneysense.ca points out that a TFSA is closer to an investment than a savings account. Given this categorization, one of the biggest questions people have is, “How is it different than an RRSP?”

The main difference is that money in an RRSP is taxed when you make a withdrawal using your tax rate at that time. The presumption is that if you take it out in retirement, your tax rate will be lower than when you are working and therefore you have saved some money that has had the opportunity to grow.

With a TFSA, you are not taxed when you make a withdrawal, because you have already paid tax on the deposited funds Therefore, there is no deduction on your tax return when you contribute, like with an RRSP. What you do get, is the opportunity to save money and not pay additional taxes on the investment earnings.

As with an RRSP, there are limits to how much you can contribute annually to a TFSA. Your financial institution generally also has information on their website explaining the difference between these two investment opportunities. Take the time to do the research to find the best one for you.

Download the full article here. 

For each year you file taxes, CRA sends out a Notice of Assessment. And if you take a second look at your assessment, you might see that CRA highlights some pretty important information.

Every Notice of Assessment is an indication of how much room you have in your RRSPs and what you are eligible to contribute in the coming year.

Below is an example of what your notice looks like. On the bottom right hand side is line A outlined in red. This tells you your RRSP deduction limit for the coming year. Directly below line A, is line B which tells you how much you have left to contribute after last year’s investments.

When looking at your own Notice of Assessment, check out the figure at the bottom. That amount is what you could still contribute this year as an eligible deduction. Consider that you have 60 days into the new year to make RRSP contributions for last year to maximize your investments and contribute that amount into an RRSP.

The CRA website provides additional information about contributions to RRSPs.