All You Need To Know About TFSA To Avail Best Benefits

The Tax-Free Savings Account (TFSA) has emerged as a great option for Canadians as it enables them to earn tax-free income on their investments. In other words, the income via dividends, interest or capital gains within the TFSA stands non-taxed in the present as well as the future. Whether you contribute a certain amount to this account or even make a withdrawal, the income will not be taxed. TFSA also serves as a flexible investment tool as it enables you to put back money into the account in the subsequent year after withdrawing it in the previous year. Considering the advantages of this investment vehicle, it makes a great choice if you want to invest for a tax-free income. Here are some tips to avail its best benefits:

1.The investments you can put in a TFSA are diverse

The investments you can put in this account are varied, from mortgages to GICs, bonds, stocks, mutual funds and more. You can make cash deposits to buy investments or even transfer the mutual funds or shares that you already own. The rule of thumb is that such investment has to be genuine. For instance, you cannot put in a personal investment into the account; rather, it should be an investment set up through a financial institution.

2.You have to contribute within limit

Another factor to bear in mind is that your TFSA contribution has to be within limit. The current contribution limit stands at $5,500. The contribution limit of one particular limit can be carried forward to the next year, though you have to be at least 18 years old to catch up on the past contribution room. You should avoid over contributing as you may end up facing unexpected penalties on doing so.

3.You can open more than one such accounts

A thing that most people are not aware of is that they can open multiple TFSAs depending on your financial goals. However, you need to adhere to the limits for the annual and lifetime contribution limits. In other words, even if you have more than one such account, your annual contribution room still stands at $ 5,500. Ensure that you sum up the amounts in all the TFSAs while calculating the annual limit.

4.It should be used for building wealth

Tax Free Savings Account is a smart investment option, provided that you use it for the right purpose. It is ideal for building up long-term wealth, rather than to be used for planning short-term spending, such as those for vacations or consumables. Since it yields tax-free investment income, you should not use it for saving money that you plan to spend in short-term as it defeats the purpose itself. Instead, you should have the mindset that the money you deposit in this account is off-limit unless there is a big emergency.

5.TFSA can be gifted

Another amazing fact is that TFSA can be gifted to someone. Even though it does not affect your contribution room or gets you any additional tax benefit, you can avail an effective benefit by gifting it to your spouse or child. Another thing to know is that one’s spouse can be the beneficiary of the account after the holder’s death.

6.Dedicate an income stream to the account

Contributing to TFSA may not be feasible for those with low income as you may not be able to save up enough to invest within your annual contribution limit. But there is no lower limit to start investing. Moreover, you can take a smart decision by finding some alternative source of income (such as a side job) and dedicating it for your TFSA investment. This way, you can save a part of your income and make it tax-free as well.

TFSA is a golden investment opportunity for every Canadian, provided that you use it the right way. Being aware of these basics can help you leverage it to your advantage and “save while you save”.

This post contains sponsored links from Sun Life Financial.

About weta5097

The author has many years of experience in the writing and editing industry. He likes mostly in areas related to business and investment, eternity diamond rings and other similar topics. He shares his Ideas on his blog Entrepreneur Business and Wedding Photography Business.
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