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How to Invest in a TFSA: 3 Key Points You Need to Know

by Invisor Last updated on August 12, 2015 Tags: Big Purchase Tips, Save Well, How-Tos

A recent article published in Benefits Canada pointed out that the majority of Canadians don’t know how Tax Free Savings Accounts (TFSA) work. The TFSA is a tax-sheltered account for Canadians in which any gains or income earned in the account are tax-free, even when the money is withdrawn. Because income is not taxed, your earnings grow quicker than they would in a taxable account since any money that would have been withdrawn to pay taxes instead earns income for you.

 This is what economists call the compounding effect.

The TFSA is a great option for your investment accounts and one that we strongly suggest you consider. For that reason, we feel that it’s important to review three key points you need to know and highlight a few other features of these investment accounts.

What happens if you don’t contribute the maximum amount to your TFSA?

As soon as you turn 18 you are eligible to use a TFSA. Any unused contribution room from the year of your 18th birthday or 2009, whichever is later, is carried forward. As of 2015, the total amount of TFSA contribution room available is $41,000. As an example, if you contributed a total of $10,000 to your TFSA since 2009, you still have room to contribute $31,000 more at any time.

What happens if you withdraw funds from your TFSA?

You can also withdraw from your TFSA whenever you want. If you take money out, you can recontribute it the following year, in addition to the annual maximum.

As an example, if you had used up all of your contribution room up to 2015, and you subsequently withdrew $5,000 in 2015, you will be able to contribute up to $15,000 in 2016 (the $5,000 you withdrew in 2015 + the annual limit of $10,000).

What investments can you hold in a TFSA?

You can hold a wide range of investments in a TFSA including Stocks, Bonds, GICs, Exchange Traded Funds and Mutual Funds. All securities that we invest in at Invisor are TFSA eligible.

Other important features of a TFSA:

  • The annual TFSA contribution limit for 2015 is $10,000;
  • Contributions are not tax deductible.  However, any gains made in the account, including income earned, is tax-free;
  • You can contribute to your spouse’s or common-law partner’s account at any time;
  • There is no maximum age for contributing to your TFSA. All Canadians 18 years and older are eligible.

Remember, a TFSA is only a type of account. How you invest the money you save in this account should be in accordance with an investment plan aligned with your goals.  Work with an investment advisor if you are unsure how to invest and grow your TFSA savings.

Have more questions about TFSAs or other accounts? Give us a call at 1-866-611-5431 or send us an email at hello@invisor.ca and we’d be happy to address them.

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