A Tax-Free Savings Account (TFSA) is a great tool you can leverage to help you tackle those financial goals this year. The objective of a TFSA is to help you grow your money without tax implications. This is a better option when comparing to a traditional savings account because your funds are being invested into segregated or mutual funds and growing tax-free. The interest you earn on your funds in the TFSA is tax-free. Although group benefits may or may not offer a TFSA, you can get your employer to help you save by having a portion of each paycheque automatically deposited into your TFSA each month.
If you don’t currently have a TFSA set up and you run into an emergency or are dealing with the loss of a loved one that did not carry life insurance, you can withdraw from your TFSA to cover costs during difficult times. When things improve and you are able to, you can contribute back into your TFSA. Each year you are limited to the amount you can contribute, therefore when replacing the funds withdrawn from the TFSA you’ll want to be mindful to not exceed the contribution limit in that year. Here is an in-depth example from CRA about withdrawing and re-contributing to your TFSA to help you gain a better understanding.
There are different ways to invest your money in a TFSA. Much like other investments, there are conservative and aggressive approaches. Interest, dividends, and capital gains earned in a TFSA are tax-free for life. Each year the government allows you to contribute up to a certain amount, if you don’t maximize the contribution amount, it carries forward to the next year. Any contributions beyond your contribution room can be subject to tax. The annual TFSA contribution limit in 2019 has increased to $6,000.
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