Are you taking advantage of a Tax-Free Savings Account?
Tax-Free Savings Accounts (TFSA) provide a tremendous opportunity for you to save for your financial goals.
Whether you are saving for a new car or a home purchase, your child’s education or your own retirement, a TFSA can help you reach your goal sooner. As a registered plan, created to help Canadians save tax-free in addition to RSPs, TFSAs have broad appeal to many and their role in your financial plan will depend on your age, taxable income and financial objectives.
The 2013 annual TFSA contribution limit is $5,500, an increase of $500 from previous years. Any unused contribution room can be carried forward for use in future years. If you do not already have a TFSA, you may be eligible to contribute up to $25,500 ($5,000 per year from 2009 to 2012 plus $5,500 for 2013).
TFSA contributions are not tax deductible for income tax purposes; however your investments grow tax-free inside your account. In addition, withdrawals from your TFSA can be made for any purpose tax-free and at any time, depending on the investments held within your account.
Amounts withdrawn in the current year will be added to your contribution room at the beginning of the following year. For example, assume you have a balance of $10,000 in your TFSA as of January 2nd, 2013, and you make a withdrawal of $5,900 in October 2013. On January 1, 2014, an additional $5,900 will be added to your TFSA contribution room.
Planning Opportunities
- TFSAs provide an opportunity to split income with family members. You can give or loan your spouse, common law partner and adult children funds to make a contribution to their own TFSA. The income earned within their TFSA would not be attributed back to you.
- Consider holding investments in a TFSA that would otherwise be taxed at high rates outside a registered account, such as interest income.
- Maximize the return potential within your TFSA and diversify your investments. Eligible investments within a TFSA include GICs, mutual funds, stocks and bonds.
- Consider contributing any surplus RRIF or pension income into your TFSA. Neither the income earned nor withdrawals from a TFSA will affect your eligibility for federal income-tested benefits and credits such as the Old Age Security, GST credit and age credit.
As taxpayers, we take one step forward when we earn income and half a step back when we pay taxes. With a TFSA, we take a full stride forward and keep going each year without the loss of value due to taxation. If you have been considering managing your investments online, why not open a TFSA with BMO InvestorLine and benefit from the tax savings.
The comments included in the publication are not intended to be a definitive analysis of tax law: The comments contained herein are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.
BMO InvestorLine Inc. is a member of BMO Financial Group.
® Registered trade-mark of Bank of Montreal, used under licence. BMO InvestorLine Inc. is a wholly owned subsidiary of Bank of Montreal Holdings Inc. Member – Canadian Investor Protection Fund. Member – Investment Industry Regulatory Organization of Canada.
