Tax Free Savings Account (TFSA)

If you are looking for a government-sponsored savings program that is not tax-deductible, the TFSA is the right pick. In Canada, this program was launched in 2009 for individuals who are 18 years and above plus those who possess a valid Social Insurance Number. Any contributions that you make to TFSA is not tax-deductible and income earned from this account including capital gains is tax-free. Additionally, even the administrative or related fees associated with the TFSA, as well as any interest paid on money borrowed to contribute to the account, are not tax-deductible. Overall, the TFSA provides individuals with a tax-free savings option for their lifetime.

TFSA Guaranteed Investment Certificate (GIC)

TFSA GICs offer a safe and low-risk way to invest with guaranteed interest rates for a fixed term. You can choose between cashable and non-redeemable options depending on your need for flexibility or long-term investment goals. By laddering a series of GICs, you can reduce the risk of locking in your money at a lower interest rate and have access to regular intervals of locked-in money. Investing in a TFSA GIC means you won't have to pay taxes on the interest earned, providing a secure and tax-free way to grow your savings.

Exchange Traded Funds

ETFs are investment vehicles that allow investors to trade a collection of securities, such as stocks or bonds, like individual stocks through a brokerage. They provide flexibility and diversification, and are typically pegged to follow a particular market index, resulting in lower management fees and higher returns. Investing in ETFs within a TSFA is a good choice for moderate risk with moderate returns. However, ETFs can be more volatile than conservative investment options like GICs.

Stocks / Equities and Bonds

Investing in stocks and bonds within a TFSA can offer the chance for significant returns, but it's a more advanced strategy that requires some understanding of the stock market and a gut for moderate-to-high risk. TFSAs have a yearly contribution limit of $6,000, making careful investment in open market stocks and bonds a good option. However, we need to take care of the rules for foreign investments and the potential penalty for actively trading stocks. While investing in equities in a TFSA offers less tax savings, only 50% of capital gains are taxed and you only pay tax when the shares leave your hands.

TFSA Mutual Funds

Mutual funds are a popular investment option in Canada where you invest in a diverse collection of stocks, bonds or commodities that are managed by a portfolio manager. They have higher fees than ETFs or self-managed stocks but offer a solid hands-off option with professional guidance for long-term investments. You can buy and sell them easily and the money earned on mutual fund investments within a TFSA will not be taxed. Choose a fund that aligns with your risk tolerance and consider the impact of management fees on your rate of return.

Contributing to your partner’s TFSA

TFSAs cannot be joint accounts, but couples can pool their finances by giving money to their partner to contribute to their own TFSA. This is a good way to maximize tax-free investment potential for both partners, as the person receiving the money does not need to have earned income that year to make a contribution.

Tax-Free Growth

The main advantage of TFSA is that all investment incomes are tax-free which includes capital gains, dividends and interest, earned within the account. This means you won't be subject to income tax on the growth of your investments, allowing your savings to compound over time without any tax implications.

Flexible Contribution Room

TFSAs provide individuals with annual contribution room, which is the maximum amount you can contribute to your TFSA each year. The contribution room accumulates if not fully utilized and carries forward to future years. This flexibility allows you to contribute to your TFSA according to your financial situation and take advantage of unused contribution room from previous years.

No Tax on Withdrawals

Unlike other registered accounts, such as Registered Retirement Savings Plans (RRSPs), withdrawals from a TFSA are tax-free. You can access your savings at any time without incurring any tax consequences or penalties. This flexibility makes TFSAs a suitable option for both short-term and long-term financial goals.

Wide Range of Investment Options

When you wish to create a diversified investment portfolio within your TFSA, then there are a wide range of investment options, including cash, savings accounts, Guaranteed Investment Certificates (GICs), stocks, bonds, mutual funds and exchange-traded funds (ETFs) available.

Lifetime Carry-Forward

Unused contribution room in a TFSA can be carried forward indefinitely. If you have not maximized your contributions in previous years, you can make up for it in the future by utilizing the carry-forward provision. This provides flexibility in planning and maximizing your tax-free savings over the long term.

No Impact on Government Benefits

Contributions to a TFSA do not affect your eligibility for government benefits or credits, such as Old Age Security (OAS) or the Canada Child Benefit (CCB). Since TFSA withdrawals are tax-free, they are not considered taxable income and therefore do not impact your eligibility for income-based benefits or affect your tax bracket.

Estate Planning Benefits

TFSAs offer estate planning advantages. Upon your death, the value of your TFSA can be transferred to your spouse or common-law partner without any tax implications. Additionally, if you name a beneficiary, the TFSA assets can be transferred directly to the beneficiary outside of your estate, avoiding probate fees and potentially simplifying the distribution process.

It's important to note that there are annual contribution limits set by the government, and exceeding these limits may result in tax penalties. Consult with our financial advisor who will help you understand the specific rules and regulations related to TFSAs and develop a tailored savings and investment strategy that aligns with your financial goals and tax planning needs.

Contribution Room

TFSA contribution room accumulates each year, even if you don't make a contribution. The annual contribution limit is indexed to inflation and rounded to the nearest $500, with the current limit at $6,000. Unused contribution room can be carried forward to future years, allowing you to contribute more in the future.

Flexibility in contributions and withdrawals

Unlike Registered Retirement Savings Plans (RRSPs), TFSAs allow you to withdraw funds at any time without penalty or tax consequences. You can also contribute the amount you withdrew in future years, making it a great option for short-term savings goals.

Gift and estate planning

TFSAs can be used as an effective estate planning tool, as they allow you to designate a beneficiary and transfer the account to them upon your death. This can be particularly beneficial if you want to leave money to a loved one without them having to pay taxes on the inheritance.

Can be used for education expenses

TFSAs can be used to save for education expenses, such as tuition, textbooks and housing. This can be especially useful for those who do not qualify for Registered Education Savings Plans (RESPs) or have already reached their contribution limit.

Can be used to reduce OAS clawback

The Old Age Security (OAS) pension is subject to a clawback if your income exceeds a certain threshold. However, withdrawals from a TFSA do not count towards your income, which can help reduce the amount of OAS clawback you may have to pay.

Can be used for long-term care expenses

TFSAs can be used to save for long-term care expenses, such as home renovations, medical equipment and in-home care. This can be particularly useful for seniors who want to age in place and require extra financial support.

Contact MyLegacy Financial Group

You can contact MyLegacy Insurance Services either by phone, email or by visiting our website. Our customer service representatives will guide you through the process of opening an TFSA and answer any questions you may have.

01 Step

Contact MyLegacy Insurance Services

The first step to opening a TFSA account through MyLegacy Insurance Services is to get in touch with them. You can do this by phone, email, or by filling out a contact form on our website. Our representative will guide you through the process of opening a TFSA account and answer any questions you may have.

02 Step

Provide Necessary Information

Once you have contacted MyLegacy Insurance Services and expressed your interest in opening a TFSA account, you will need to provide some basic information such as your name, address and Social Insurance Number (SIN). You may also be asked to provide additional documentation, such as a government-issued ID or proof of residency.

03 Step

Fund Your Account

After your information has been verified and your account has been set up, the final step is to fund your TFSA account. You can do this by transferring funds from an existing bank account or investment account, or by setting up automatic contributions from your regular income. Once your account is funded, you can start investing in stocks, bonds, mutual funds and other eligible investments.