TFSAs Explained
Léo Richer | Chair , Pension and Financial Wellness Committee
Curious about the advantages of Tax-Free Savings Accounts ( TFSAs )? Melissa Arenas , Senior Financial Advisor with Alberta Treasury Branches , gave an excellent presentation to the Pension and Financial Wellness Committee on this topic last fall . Here ’ s what we learned .
A TFSA is a vehicle that allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime . It is much more than a savings account ! Every year since 2009 , the Canadian government has set out a maximum contribution amount . Currently , it is $ 6,000 for 2022 , and the total amount since 2009 has grown to $ 81,500 . If one has not contributed in the past , one can invest up to the full $ 81,500 limit at any time .
Flexibility is one of the main advantages of a TFSA portfolio . TFSAs can hold various investment products , such as stocks , bonds , exchange traded funds ( ETFs ), mutual funds , and guaranteed investment certificates ( GICs ). This is what makes them ideal for building an investment portfolio customized to your return and risk profile . Would this be available and beneficial for retired Canadians ? Absolutely .
Your TFSA grows tax-free , and you can make withdrawals freely . Withdrawals do not affect government benefits such as Old Age Security , Guaranteed Income Supplements , or Employment Insurance . It is an efficient taxplanning tool , as you don ’ t pay taxes on the money earned within your portfolio . For example , if you have interest earnings of $ 500 in your TFSA , you do not ever pay tax on that $ 500 .
A TFSA can be used as supplemental tax-free income and there is no mandatory withdrawal age . Unlike RRSPs , TFSAs are not based on earned income . TFSA contributions are made with after-tax dollars and the CRA allows contributions to a spouse or common-law partner ’ s TFSA to maximize your contributions .
One further benefit is that withdrawn funds can be reinvested in your TFSA in future calendar years . If you withdrew $ 10,000 in 2020 you would have been able to invest $ 16,000 in 2021 ( the $ 6,000 yearly allotment plus the $ 10,000 withdrawn in the previous year ).
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