A Tax-Free Savings Account (TFSA) is a flexible, registered, all-purpose savings vehicle that has allowed Canadians to earn tax-free investment income since it was introduced in 2008. Here are three reasons that you should be contributing to a TFSA:
A second stream of retirement income:
If you’ve already maximized your Registered Retirement Savings Plan (RRSP) contributions, you can use a TFSA as an additional source of funds in retirement. A TFSA is very complementary to an RRSP, as you can withdraw funds at any time without tax consequences and you can contribute at any age (unlike an RRSP, which you can only contribute to until you turn 71).
Saving for a specific goal:
Unlike RRSPs, you can withdraw funds from your TFSA whenever you want without being taxed on the withdrawal. Whether you’re saving for retirement or saving to take a family vacation, this lack of restriction makes a TFSA an ideal investment vehicle for both your short and long term investment goals.
Reducing taxes paid on your income:
TFSAs are a great way to avoid paying taxes on a portion of your income. If you are earning investment income, you can move those funds into a TFSA. The income you earn will be tax-tree, which will help your money grow at a faster rate.