The TFSA or Tax-Free Savings Account was introduced in 2009, but still many people cannot fully comprehend the benefits, that this account provides.
Since its initial launch in 2009, people believed this account stores only short-term amounts and is to be only used as a secondary savings account.
However, only some realize the other benefits that the TFSA provides.
In this article, we will discuss some benefits the TFSA provides its users.
6 Amazing Benefits of TFSA
1. TFSA Is More Than Just Cash
When the TFSA was launched in 2009, people believed it was just a basic savings account as the term suggested. People formed an image that TFSA is limited to just cash savings.
Gradually people realized that the TFSA is much more than a savings account and can provide features like an RRSP. The traits similar to RRSP that TFSA can hold are:
- Mutual Funds
- Other long-term investments
- The TFSA can also be used to hold retirement assets.
2. TFSA Provides Tax-Free Growth
Unlike the RRSP which is subjected to taxes when you withdraw your assets from it, the TFSA provides tax-free growth and all assets such as:
- Capital Gains
All these assets are tax-free, and you won’t have to pay anything when you withdraw from your TFSA or sell your assets within your TFSA.
When you withdraw these assets from your RRSP, it is treated like income and taxed according to your tax bracket.
TFSA provides flexibility to withdraw your income at any given time for any given reason. This amount is not subjected to any tax, unlike RRSPs.
This withdrawal amount is added to your contribution room for the following year.
Unlike the RRSPs subjected to tax, you also lose your contribution room, which is not added back the following year.
4. High Contribution Room
The advantage of a TFSA when the contribution room was just $5000 was not enough. Your tax savings was not high, but a low amount.
However, this contribution room has now hiked to $81,500, and you can save a lot from your investment earnings.
You can save a lot from this contribution room, as this is tax-free.
5. Ideal for Investors Having A High Net Worth
Investors having high revenue generally know the benefits of the TFSA and contribute first contributions to their RRSP and their TFSA later.
Any investor having a high net worth must consider the benefits of using a TFSA.
6. Retirement Planning Tool
People maxing out their RRSPs can avail of the retirement savings option that the TFSA provides. You can contribute your maximum each year, and when you withdraw this money at retirement, it comes to you tax-free.
It also helps reduce tax obligations at your retirement and as a source of retirement income.
If properly used, this tool helps save for your retirement quickly and tax-free.
The TFSA has changed much after its initial run in 2009. It provides tax-free benefits and has increased the contribution room to $81,500.
However, some people may not know the key benefits that the TFSA has and might not avail of this account due to less knowledge. However, TFSA is ideal when choosing an investment account and strategizing your retirement.