TAX FREE SAVINGS ACCOUNT (TFSA)

As of January 1, 2009 the new tax free savings account (TFSA) will be available to all Canadians aged 18 years and older. This is another great place to build a secure nest egg - and keep all the growth for yourself! You'll be allotted new contribution room each year.... $5000 to start - and any unused contributions will be carried forward to future years.
Whether you are saving for the short term (0-5 years) or for the longer term (6 years and beyond) a TFSA can be a valuable addition to your financial plan.

TOP 10 THINGS TO KNOW ABOUT THE TAX-FREE SAVINGS ACCOUNT

1. The Tax-free Savings Account (TFSA) is available in Canada on January 1, 2009.

2. You can open a TFSA if you're 18 years of age and are a Canadian resident.

3. The TFSA lets you invest while not being taxed on interest or any investment earnings.

4. In 2009, you are able to contribute up to $5,000.

5. When you file your tax return, the Government will determine the amount remaining for you to contribute to your TFSA the following year. Any unused contribution room gets carried over to the next year.

6. If you make a withdrawal, the amount withdrawn will be added to the contribution room available for the following year.

7. You can have more than one TFSA, including TFSA's with other financial institutions. The important thing is to remember how much you've contributed. You can only contribute a total of $5,000 between all TFSA accounts.

8. Unlike an RRSP, you don't pay tax on any money you withdraw from the TFSA. Withdrawals also don't affect your ability to qualify for Federal Benefits such as the Child Tax Benefit or Old-age Security.

9. You'll be able to invest in Segregated Fund contracts, GIC's and Mutual Funds.

10. Money invested in a TFSA cannot be deducted from your income on your tax return; only contributions to a RRSP qualify as a deduction.

Now you have a flexible alternative to registered savings and still take advantage of tax-sheltering your money.

Example:
Brian and Gayle have built up $40,000 in their TFSA accounts and now they would like to withdraw $25,000 to pay for a new roof and minor renovations on their home. They can withdraw the money tax-free from their TFSA accounts. Had they used their RSP savings, they would have had to withdraw just over $35,000* to pay taxes on the RSP withdrawal and to cover the $25,000 renovation costs. And the RSP contribution room would have been lost. By withdrawing money from their TFSA Don and Susan will save on taxes and be able to recontribute the $25,000 to their TFSA accounts in the future.

*at 30% marginal tax rate

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