What you need to know about the TFSA - MoneySense

What you need to know about the TFSA

Seven tips to help you get the most out of your tax-free savings account.




Canadians are still learning the ins and outs of Canada’s tax-free savings accounts. Here are seven tips to maximize your savings.

1. Don’t procrastinate. The sooner you put your money into a TFSA, the sooner you’ll begin to benefit from the tax-free compounding. So the earlier you put your money into the plan, the better. If you’ve already made this year’s contribution and are now saving up for next year’s, you might want to stash away a little extra. The limit was raised $5,500 starting in 2013.

2. Become a savings overachiever. Used up all of your RRSP contribution room? Looking for more ways to shelter your savings from taxes? Use up all of your TFSA contribution room before investing in non-registered accounts so you can keep your profits all to yourself.

3. Reduce taxes later. There are claw backs on income-tested benefits like Old Age Security (OAS). If your net income is over the threshold ($67,668 for 2011), your OAS pension will be reduced by 15 cents for every dollar of income above the threshold. If you’ve got a very healthy RRSP or company pension plan, using a TFSA can help you manage your retirement income so you can still get all the government money coming to you. Since withdrawals from your TFSA are non-taxable, they will not be included as part of your net income.

4. Save tax-free even when you’re past age 71. RRSPs have to be wound up by the end of the year in which you turn 71. This isn’t the case for TFSAs. You can use them to continue to shelter investment income from taxes.

5. Eliminate income attribution. The income attribution rules which apply to Spousal RRSPs and non-registered investments do not apply to TFSAs. Give your better half the cash to make his or her TFSA contribution and double your family’s contribution limit.

6. No use-it-or-lose-it. In the best of all worlds you’ll max out your TFSA contribution every year. But in those years when life happens and you just don’t have the bucks, you won’t lose your contribution room. It will accumulate and can be used at a later date.

7. Took it out? Put it back! Unlike withdrawals from an RRSP, which can never be returned to the plan, amounts withdrawn from your TFSA this year will be added to next year’s TFSA contribution limit. You don’t have to put it back into the same account either. If you’ve found a better place to keep your money, go there. But remember, while you can have TFSAs at different financial institutions, it’ll be up to you to keep track of your contributions. The tax-man will be watching closely, and if you go over, he’ll hit you with 1% per month penalty on the over-contribution.

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