Throughout my career as a financial advisor I have refined my skills and redefined my role in order to best serve my clients.  I have evolved to a point where my focus is to help successful business owners optimize their wealth.  In order to do this, I am constantly updating my financial toolbox to ensure I am building the best plans for my clients.

The newest tool available to you is the Tax Free Savings Account (TFSA).  Introduced by the federal government, the TFSA came into effect in January 2009.  While it is not imperative that you set up a TFSA right away, this tool has been getting a lot of publicity as of late and it is important that you understand the facts and benefits of this type of account.  Once you understand this tool, you can consult your financial blueprint and decide if the TFSA is the right tool to help you build your future.

What is a Tax Free Savings Account?

Much like the introduction of RSP accounts, the TFSA was introduced in the last federal budget to encourage individuals to save through investing.  The incentive is that all investments made within a TFSA are exempt from being taxed on income and gains.  There is a limit to how much you can contribute each year, but no limit on the tax-free income and gains that are earned.  

What are the rules?
• Your financial advisor can open a TFSA for you at any time.
• Starting January 1, 2009, all Canadian residents age 18 and over can begin contributing.
• You can contribute up to $5,000 per year regardless of your income.
• You can carry forward unused contribution room from year to year.
• Your withdrawals are not taxed.
• You can re-contribute any withdrawn money the following calendar year in addition to your annual contribution of $5,000.
• Within the TFSA, you can invest in mutual funds, stocks, and bonds.

TFSA vs. RRSP

The main difference between a TFSA and an RRSP is how you are taxed when contributing and withdrawing.  RRSPs are an income tax deduction at time of contribution, but withdrawals are taxed as income.  Conversely, you are using after tax income when you contribute to your TFSA, but are not taxed when you withdraw from the account.

Do I need to start contributing to a TFSA right away?

Not necessarily.  Keep in mind that the TFSA was not created specifically for you – it is simply a new tool in your financial toolbox.

The question you should be asking is:  Does investing through a TFSA fit into my financial plan?

In order to decide if the TFSA is the best tool to use for your savings and investments, you need a qualified advisor to build a financial plan that helps you achieve your personal and financial goals.  Once that plan is built, you will have a blueprint that will guide you through these decisions and give you financial peace of mind.

If you would like assistance in building your financial blueprint and decide if a Tax Free Savings Account fits into your plan, please contact Glenn Ayrton at ClearWealth Advisors at 604.687.6808 or <info@clearwealth.ca> ■  

Glenn Ayrton is registered as an Investment Advisor through Sora Group Wealth Advisors Inc., a Member of the  Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund (CIPF). This information is general in nature, and is intended for educational purposes only. For specific situations you should consult the appropriate legal, accounting, or tax expert. This update is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any securities. The views expressed are those of the author and not necessarily those of Sora Group Wealth Advisors Inc.