Tax-Free Savings Account - TFSA
Definition of 'Tax-Free Savings Account - TFSA'An account that does not charge taxes on any contributions, interest earned, dividends or capital gains, and can be withdrawn tax free. Tax-free savings accounts were introduced in Canada in 2009 with a limit of $5,000 per year, which is indexed for subsequent years. The contributions are not tax deductible and any unused room can be carried forward. This savings account is available to individuals aged 18 and older and can be used for any purpose. |
|
Investopedia explains 'Tax-Free Savings Account - TFSA'The benefits of a TFSA come from the exemption of taxation on any earned income from the investment. To illustrate this, let's take two savers: Joe and Jane. Joe puts his money in a investment making him 7% per year; Jane does the same but within a TFSA.If both Jane and Joe make a $5,000 lump sum investment, they will each have $5,350 at the end of the year. Jane will be able withdraw all $5,350 without penalty, whereas Joe would be taxed on the $350 he earned. A registered retirement savings account (RRSP) is for retirement, while a TFSA can be used to save for anything else. The tax-free savings account differs from a registered retirement account in two main ways: 1. Deposits in a registered retirement plan are deducted from your taxable income. Deposits into a TFSA are not tax deductible. 2. Withdrawals from a retirement plan will be fully taxed according to that year's income. Withdrawals from a TFSA are not taxed. The TSFA addresses some of the flaws that many believe exist in the RRSP program, including the ability to return withdrawals to a TFSA at a later date without reducing unused contribution room. |
Related Definitions
Articles Of Interest
-
Tax-Saving Tips For Canadian Taxpayers
Find out how to get a bigger return. -
The Beauty Of Budgeting
Make it to the end of the month, before you run out of money. -
Advisors: How To Help Young Clients Plan For The Future
Making high-risk investments isn't always the best course. Learn what other factors advisors should consider. -
Tax Breaks For Canadian Families
Canadians have a lot of advantages when it comes to family tax perks. -
Registered Retirement Savings Plans (RRSP)
Learn how the Canadian government makes saving for your post-work years easy. We take you from your first contribution to your first withdrawal. -
How To Start Saving For Retirement
If you establish these money-saving habits and patiently allow your wealth to build, you will be taking some huge steps forward in making your financial future more secure. -
An Introduction To The Keogh Retirement Plan
Learn more about this popular defined-contribution retirement plan that many business owners, proprietors, and self-employed people can benefit from. -
Women: Invest In Your Financial Literacy
Learning about money may seem intimidating, but it's not as hard as it looks. -
How To Buy Annuities (And When Not To)
Annuities are complicated products that require some basic homework to be done before requesting quotes. Retirees will want to think about how they envisage their lifestyle and even their potential ... -
How To Profit From Risk
CDs may look safe and attractive but considering most pay a rate that is less than the rate of inflation seniors today risk actually losing money with CDs. We need to be our own money managers ...
Free Annual Reports