by Chloe Cross, BMO Financial Group, Sidney –
In 2009, the federal government launched what has turned out to be a highly popular investment vehicle called the tax-free savings account (TFSA).
The TFSA is a government-designed account that allows taxpayers to earn interest, dividends and capital gains on a tax-free basis. The TFSA is ideal for individuals who wish to access funds on a tax-free basis before retirement, for taxpayers who have maximized their RRSP contributions, and for seniors who have savings and are concerned about their investment earnings impacting federal income-tested benefits or credits such as Old Age Security, Guaranteed Income Supplement and federal age credit.
While the annual TFSA contribution amount is $5,500, not everyone will be willing to maximize their TFSA contribution every year. To address this, TFSA rules allow you to carry forward any unused contributions and then deposit all or a portion of your available contribution amount later to your TFSA. This special carry-forward provision is an attractive feature for individuals who have modest or intermittent income.
The TFSA allows you to invest your contributions in a broad array of investments. You can go the conservative route and use Guaranteed Investment Certificates (GICs), or you can purchase government and corporate bonds, mutual funds and securities listed on a designated stock exchange.
People who don’t have cash, but do have qualifying investments, can also contribute to a TFSA by making an “in kind” transfer of these investments directly to a TFSA. The only caveat here is to consider possible tax implications.
A TFSA subscriber can name their spouse or common law partner as their successor annuitant on their TFSA, and then the proceeds of the TFSA transfer directly to their successor without having to pay income tax. Where large sums have accumulated in the TFSA, the tax savings can be substantial. The new TFSA owner now holds the proceeds under their own TFSA.
The Tax Free Savings Account is proving to be a very popular savings vehicle. Its many benefits are attracting Canadian savers from all walks of life, from people enjoying their retirement years to young families looking forward to financial stability.
For more information, call 250-655-2122.
This article is provided for informational purposes only and is not, and should not be construed as investment advice and/or tax advice. Financial Planners, Investment & Retirement Planning are representatives of BMO Investments Inc., a financial services firm and a separate legal entity from Bank of Montreal. ®Registered trade-marks of Bank of Montreal, used under licence.