You’re starting out:
Unlike an RRSP or RRIF, the money you deposit into your TFSA has already been taxed, so when you withdraw from your TFSA, you will not be taxed again. Like RRSPs and RRIFs, you can hold savings accounts, but also term deposits/GICs (Guaranteed Investment Certificates) and other investments within your TFSA and not have to pay taxes on the earnings of those investments, which greatly helps your money grow over time. You can use this money for your retirement planning, but you can also use money in your TFSA for other shorter-term purposes, like travel or buying a car. If you are unsure of your future plans, TFSAs are a great way to save so that you are better able to take advantage of whatever opportunity may come up!
An easy way to start saving is to set up an automatic savings deposit, to move a bit of money from your chequing or savings account into your TFSA each week or month.
Click here to use a TFSA Calculator to calculate how much you can save when you start investing now.
You are a bit more established:
A TFSA can help you create a well-rounded retirement plan or be a place to save for short-term and long-term goals. Savings for a vacation or for buying a new car are examples of short-term goals. Long-term goals include purchasing an investment property or cottage.
Alternatively, if you have maxed out your child’s Registered Education Savings Plan (RESP), a TFSA can be a great (additional) place to save for your child’s education. Investing in a term deposit within your TFSA and locking it in for a higher interest rate is safe and beneficial.
Not saving for anything in particular? This is a great place to stash your rainy-day fund!
You are starting to relax and enjoy life:
TFSA’S only came into existence in 2009 so when most people think about retirement savings, they’re likely thinking about RRSP’s and RRIF’s (Registered Retirement Savings Plans and Registered Retirement Income Funds). This is also most likely where the majority of those in retirement years have their savings. Unlike RRSP’s there is no age limit to depositing into a TFSA (but you do have to be at least 18 to start making your deposits).
While it is usually recommended that you max out your RRSP if you are able to, once you have hit your limit, or are 71+, a TFSA can be beneficial to your finances. The TFSA is a great option to save funds with tax-free growth as well as tax-free withdrawals which do not add to one’s taxable income and do not affect eligibility for other government benefits. Because TFSAs offer tax shelter, this is a great way to invest in GICs as the interest earned from GICs are one of the more highly taxed investment options. TFSAs also offer beneficial legacy and estate planning opportunities.
Talk about your options:
Financial institutions, like Northern Birch Credit Union, are here to help. Talk to them to learn more about what investment product may best fit your needs.