Are TFSA’s Worth It?

Cole Seabrook, Financial Advisor

O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd.

This is a question that Advisors are frequently asked.

Let’s review Tax Free Savings Accounts - how they work, their benefits, and how they can play a major role in your overall wealth plan.

In 2009, the Canadian government implemented the Tax-Free Savings Account (TFSA) program to help Canadians grow their wealth while retaining more of their investment earnings. To open a Tax-Free Savings account, you must be 18 years of age and a Canadian resident and adhere to the contribution limits. Since 2009, the contribution limit has changed from year to year, ranging anywhere from $6,000 to $10,000. If an individual was age 18 in 2009, their total contribution limit as of 2022 would be $81,500. Individuals need to be aware of the contribution limits to avoid the penalties that can occur.

TFSAs or RRSPs?

It is important to understand how different investment account types can play a role within your overall wealth plan. RRSPs provide you with a tax deduction in the year you contribute, but you are taxed when the time comes to take money out of the account. With a Tax-Free Savings Account, you do not receive a tax deduction when you deposit funds into the account, but you are also not taxed on your investment returns or when you withdraw your money. TFSAs also do not have to pay capital gains tax on withdrawals as they would with a non-registered account.

While TFSA’s have many benefits some people wonder how this type of account fits into their overall wealth plan. The nice thing about Tax-Free Savings Accounts is that they can be used for many different purposes and provide investors with flexibility. They can be used to increase savings to help supplement income in retirement, or to save for an investors next vacation, home improvement or renovation.

If you have not opened a Tax-Free savings account, it may benefit you in more ways than one. Speak to your Financial Advisor today to see where a TFSA fits into your wealth plan. We welcome questions so feel free to reach out!