Making the most of your TFSA

TFSA basics

Regardless of what you are saving for, a Tax-Free Savings Account (TFSA) is a great way to save for any financial goal – a long-term goal such as retirement or a short-term goal such as a car or a vacation.

 

TFSA - family moving into new home

 

TFSAs allow Canadians to save up to $5,500 per year on a tax-exempt basis. They can hold many different types of investments, including all Fidelity Funds.

Any Canadian resident with a social insurance number who has reached the age of majority in his or her province can open a TFSA.*

See the difference a TFSA can make in five, ten, 15 and 20 years.

 

TFSA - graph comparing accumulation of  TFSA vs non registered account
Assumptions: Rate of return of 6%, marginal tax rate of 46% for interest and 23% for capital gains, distributions reinvested, distribution yield of 2.0%, distribution composed of 50% interest and 50% capital gain, initial contribution of $5,500 and contributions increase in $500 increments based on a 2% inflation rate. Contributions were made at the beginning of the period. Unrealized capital gains were taxed at the end of the holding period. This assumption ignores contributions from prior years

 

  • No taxes payable on investment income and growth, even at withdrawal.

  • Contribution limit of $5,500 per year, with unused room carried forward to future years.**

  • Can hold a wide variety of investments, including all Fidelity products.

  • Withdrawals do not count as income, and will not trigger government benefit clawbacks or affect tax credits.

  • Withdrawals can be recontributed in future years.

TFSAs vs RRSPs

  TFSAs RRSPs
Contributions Not tax-deductible. Tax-deductible.
Withdrawals Tax-free – Withdrawals are added to contribution room effective the following year. Taxed – Withdrawals are final and are not added to contribution room.
Earned income requirement for contribution room Contribution room is not based on earned income. Contribution room is based on earned income.
Age requirement for conversion/collapse There are no conversion requirements for TFSAs. An RRSP must be converted to a Registered Retirement Income Fund (RRIF) or annuity at age 71.
Attribution rules Attribution rules do not apply. Money may be given to a spouse to contribute to the spouse’s own TFSA. Attribution rules may apply to withdrawals from a spousal RRSP under certain conditions.
Eligible investments Mutual funds, stocks, bonds and all investments are currently permitted in RRSPs.

 

 

* In British Columbia, Newfoundland and Labrador, Nova Scotia and New Brunswick the age of majority is 19, and a TFSA may not be opened until then. However, you will accumulate contribution room from the time you are 18.
 
**TFSA contribution limits are determined by indexing $5,000 to inflation for each year after 2009 and rounding the result to the nearest $500. Since January 1, 2016, the TFSA contribution limit has been $5,500.
The contribution limit for 2015 was $10,000. The contribution limit for 2013 and 2014 was $5,500. From 2009 to 2012, the contribution limit was $5,000.
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