Tax-Free Savings Accounts Now Available
Canadians can sock away 5k a year, tax free
Many financial experts call it a great move.
New tax-free savings accounts were announced by the federal government last year.
Catherine Del Greco with TD Waterhouse says opening one of the accounts is a chance for Canadians to save money without being penalized for it.
You can put up to five thousand dollars a year into the account.
Del Greco says RRSP's should still be your number one retirement savings vehicle, but the tax-free account is a good idea when you're saving money for big things like trips and cars.
She says the account is also an attractive option for retirees, so they can sock away some money without having it affect their taxable income.
Comments
It's a good tool
It's the first new revolutionary tax planning tool, since RRSP's invented.
Any other year this would be welcomed
The govt needs to convince people it is OK to SPEND. Other countries are cutting taxes back to trigger commercial spending and boost their economies and the Canadian gov't is telling people to save? Not wise!
It's ok to spend, as long as
It's ok to spend, as long as you're not spending more than you earn. Let's be clear about that critical difference.
I would like someone to
I would like someone to explain to the people how $5000 a year invested in this (in even a GIC) with the interest remaining in here would grow. Young people are not savers and realizing what this would do for them or their childrens retirement should be enough to get them putting money in there!
A total of what would be in there after 20 and 40 years with a couple of different rates might help them make sense of this.
Some Tips
Hi I'm currently involved in developing software to handle the TFSA. Here are a few tips to keep in mind.
- You can hold mutual funds or stocks inside your TFSA. Given that the markets are depressed, you may find it a good time to put some money inside your TFSA and hopefully realize significant gains over the next few years, tax free of course.
- Suppose you are lucky enough to turn $5000 into say $10,000 in the 2009 tax year. If you withdraw the $10,000 in 2009 you will be able deposit $15,000 in 2010. You will be allowed the annual $5000 limit plus the $10,000 you withdrew from the TFSA in 2009.
- Be careful about how you withdraw/deposit money from a TFSA. If you put $5000 into your TFSA in January 2009, and withdraw $2000 in July for a trip. Let's say you only spend $1500 on your trip and decide to put the remaining $500 back into your TFSA in Aug 2009. At this point I think most institutions will report the total deposits for 2009 as $5500. The CRA may penalize you for depositing more than the allowed limit. It's a little vague right now as to how this will work. You may have to wait until 2010 to re-deposit money back into your TFSA. Of course in 2010 you will be able re-deposit the full $2000 you withdrew plus the $5000 allowable contribution.
- Since you don't have to pay capital gains tax, you also can't realize capital losses. Just something to keep in mind for more sophisticated investors.
What I find ironic is that
What I find ironic is that the Government is encouragin us to save with this TFSA, yet, they plan on running a deficit by spending more than they 'earn' from taxes.
Amazing. I believe strongly in saving and spending less than you earn. I don't know why anyone listens to the government, they don't practice what they preach.
Great Article
Thanks Sheri for posting an informative article about a tool that so little Canadians know about. Your points are factual and most importantly the readers comments offer insights into some of the challenges and issues facing this brand new financial vehicle. Great job!
there should also be
there should also be mentioned that any money cashed in from these accounts is never considered income.
there fore at retirement the funds redeemed wil not effect your old age pension clawback.