Monday, March 5, 2012

TFSA time – can’t touch this!!!

Uh, oh – you somehow missed the February 29th deadline for RRSP contributions on your 2011 tax return. What to do now to save on taxes and help achieve your retirement and other financial goals?  Easy – TFSA yourself.  There’s no deadline with a Tax-Free Savings Account (TFSA), it’s a great place to invest your anticipated tax refund, and it’s a tremendously flexible way to achieve tax-free savings growth.  Here’s how it works:
  • With TFSA eligible investments, you put your money in and you get your money out at any time for any purpose, tax-free.  You can invest in your TFSA eligible investments any time you want, up to your maximum contribution level.
  • The current maximum TFSA contribution is $5,000 per person, per year. This means that beginning on January 1, 2012, you were able to contribute another $5,000 to your investments held within a TFSA in addition to any amounts carried forward from your 2011 limit and any withdrawals made in 2011
  • You can make a gift to your spouse to make a TFSA contribution and transfer your TFSA assets to your spouse upon death.
  • With investments held within a RRSP, you get a tax deduction for your contributions but all withdrawals are taxable.  With TFSA - eligible investments, there is no tax deduction for your contributions but you do not pay tax on investment growth or withdrawals.  All TFSA investment earnings are totally tax-free and will not trigger clawbacks on federal tax credits or benefits programs such as the Guaranteed Income Supplement, Old Age Security Benefits, Age Credit, GST Tax Credit or Canada Child Tax Benefit.
  • You must be at least 18 years of age to open a TFSA, but there is no maximum age restriction and there is no limit on how much contribution room you can carry forward – fill it up any time you want.
TFSAs – can’t touch this!!! Well, actually you can and that’s what makes TFSAs such a flexible investment choice:
  • Say you need $15,000 for a down payment on a vacation property.  Just make a $15,000 tax-free withdrawal from your TFSA eligible investments.
  • You can re-contribute the $15,000 after January 1 of the year following the withdrawal without affecting your other eligible contribution room.
  • If you had taken that $15,000 out of your RRSP eligible investments, you would have needed to withdraw up to $27,800 to pay taxes (assuming a 46 per cent marginal rate) and come up with the $15,000 needed for your down payment – and you would have lost that RRSP contribution room.
Deadlines, schmedlines – a TFSA can work for you any time of the year.  Ask your professional advisor about how to maximize your TFSA … and all your other investment strategies.

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