You probably already know that a TFSA, or Tax Free Savings Account, can save you money. But do you know how they work, and what types of funds you can put into a TFSA? Learning how to contribute to your TFSA in order to reap the full benefits is essential for anyone in Canada over the age of 18.
How does a TFSA work?
Your TFSA is important option to shelter the growth of your investments from taxes, so you can grow your money tax-free. But it isn’t like a traditional savings account you would get at a bank. The TFSA works best for your with growth, and they should be used to house your investments with the highest growth or returns.
Since the growth of most of your investments, like a mutual fund are usually taxed as income, you could be taxed as much as 40% on the growth of your investments without a TFSA. Putting those investments in your TFSA will keep those investments tax-free, saving you a lot of money in the long run. This is especially important on large investments.
What can you put in a TFSA account?
The TFSA is a very flexible account. It can hold cash, GIC, mutual funds, bonds and much more. Ideally, you want to put your investments with the highest potential growth into your TFSA in order to save the most tax.
What are the downsides to putting money in a TFSA?
The CRA limits your contribution amounts, so if you put more than the limit into your account you will be severely penalized.
What is your personal TFSA limit?
If you want help calculating how much to put into your TFSA, ask me in the comments! Or get in touch to have your particular situation reviewed by a Certified Financial Planner.
You can also find out more about your personal tax accounts at www.cra.gc.ca/myaccount.
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