Make the TFSA part of your savings plan

It was launched by the Tories in 2009 as another option for Canadians to save for our retirements. The contribution limit was $5,000 per year.

In the most recent government budget, the annual limit was increased to $10,000 per year.

In contrast with an RRSP, contributions are not tax deductible. However, withdrawals are not taxed either (that includes income earned in the TFSA).

Thus, the invested capital is never taxed and neither is the earned income.

Also, unlike the RRSP, there is no limit to annual withdrawals. Like the RRSP, a beneficiary may be designated. That designated beneficiary generally takes the TFSA tax-free on death.

On the death of the holder, unless there is a designated beneficiary, the TFSA value is included in the deceased holder’s Estate, although any income, dividends or capital gains earned prior to death are not taxable.

The TFSA is only six years old, so of course nobody as yet can hold a significant amount of money in a TFSA. So, while a TFSA may be useful for someone approaching retirement, it is arguably better suited for a younger person, who will have many more years to build it up.

This ad ran in the Richmond News on October 23, 2015.