Don’t let the name fool you, the TFSA (that’s Tax-Free Savings Account) is a powerful little investment tool. That’s right, it’s really an investment account not a savings account as the name would suggest. Between the poor naming job and the fact that it’s relatively new, its advantages aren’t well understood by most Canadians.
That’s where we come in! In this post, I’ll run through ins and outs of the TFSA, addressing the most common questions we hear from clients.
What is a TFSA?
TFSA stands for Tax-Free Savings Account, which right off the bat we’ll say is a pretty misleading name. It’s really an investment account, not a savings account. Like the RRSP, think of it as a basket that holds cash and investments.
Contributions are made with after-tax income so there’s no tax deduction for contributing to your TFSA. Your contributions and any investment income earned (dividends, interest etc.) grows tax-free inside your TFSA basket. You can withdraw money at any time and you don’t pay tax on the money you take out.
Since they’re commonly compared, here’s the difference between the RRSP and…
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