In Canada, many people tend to see TFSA as merely a savings account, but it has a hidden feature that many are not aware of – it can be transformed from a "tax-free savings account" into a "growth and investment account"! In the industry, we often refer to this type of investment as TFSA investment.
Many savvy clients have chosen TFSA investments early on to achieve tangible, long-term, and stable wealth appreciation.
However, before you begin, many people surely have numerous questions, such as what exactly is TFSA, how does it work, and how can investors make the most of TFSA investments to maximize their benefits?
or call 647-323-3231 directly
Congratulations! Opening a TFSA account is extremely easy. TFSA stands for Tax-Free Savings Account, a type of account opened in an individual's name. As long as the applicant is at least 18 years old and has a valid Social Insurance Number (SIN), they can open a TFSA. This means that whether you are an international student with a study permit, a foreign worker with a work permit, or a Canadian resident with PR/Citizenship, you are eligible to open a TFSA and use it for investments.
You can use TFSA for various types of investments, including Segregated Funds, mutual funds, Exchange-Traded Funds (ETFs), stocks, bonds, and more.
While the deposits (principal) are not tax-free, the profits you earn from using TFSA for investments are completely tax-free. This includes capital gains, interest, dividends, and more.
The Canadian government sets an annual contribution limit for TFSA for each individual. In 2023, Canadian residents who are at least 18 years old can contribute up to a maximum of $6,500 to their TFSA account. The contribution limits vary each year, and here are the limits for previous years:
The annual TFSA dollar limit for each of the years from 2009 to 2024 are:
| Year | Limit |
|---|---|
|
2009 to 2012 |
$ 5,000 |
|
2013 and 2014 |
$ 5,500 |
|
2015 |
$ 10,000 |
|
2016 to 2018 |
$ 5,500 |
|
2019 to 2022 |
$ 6,000 |
|
2023 |
$ 6,500 |
|
2024 |
$ 7,000 |
Start investing early. In Canada, as long as you're 18 years old and have a valid SIN, you can use TFSA for investment. By starting to invest with TFSA from a young age, you'll have more time to reap the benefits, maximize your gains, and not worry about taxation even if your returns increase.
Utilizing a TFSA account for investment allows not only lump-sum contributions but also the option of using systematic investment (investing a fixed amount into specific funds at regular intervals), such as investing $500 into TFSA for segregated funds every month. This approach is highly suitable for young professionals.
In addition to RRSP, TFSA is also a great option for securing the future. It not only offers elderly individuals a tax-free storage opportunity but also emphasizes that opening an account will not affect seniors' eligibility for government assistance. Whether it's the benefits obtained or withdrawals, the same applies. Furthermore, if seniors choose to retire early, RRSP might require waiting until 65+ to access funds. However, TFSA allows direct access, providing seniors with more flexible and diverse choices.
For individuals whose RRSP contribution room is already maxed out, TFSA investments undoubtedly offer a welcome opportunity.
In contrast to high-income individuals, this group can forgo the limited benefits of RRSP due to the tax-free nature of TFSA investments.
For example, individuals planning to buy a car, a house, or travel abroad in the future.
Using TFSA for investment not only has a low entry barrier but also has almost no restrictions on eligible individuals. Unlike RRSP, which primarily serves post-retirement life, TFSA is suitable for any stage of life.
If you want to learn more about the advantages of TFSA to strengthen your belief in choosing TFSA investments, feel free to schedule a consultation with us.
There are numerous investment options available to make the most of your TFSA:
The value of Segregated Funds, a type of investment product, often fluctuates and there's no guaranteed investment return. However, when the Segregated Fund contract matures or in the event of your passing, if your account is in a loss position, the contract guarantees you'll receive 75% or 100% of your principal. You can purchase Segregated Funds using various accounts, including but not limited to TFSA, RRSP, RESP, Non-Reg, etc.Learn more about Seg-Fund
Bonds are debt securities issued by governments, financial institutions, businesses, and other entities to raise funds from the public. They are issued to investors and promise to pay interest at a specified rate and repay the principal under agreed-upon conditions.
The value of Mutual Funds often fluctuates and there's no guarantee of investment returns, nor is the principal protected from loss.
ETF, Exchange-Traded Funds, are open-ended funds that can be freely bought and sold on a stock exchange by investors. They track various indexes and provide exposure to a wide range of assets.
Stocks represent ownership in a company and serve as ownership certificates issued by the company to shareholders as evidence of holding shares. They're issued by companies to raise funds from shareholders, entitling them to dividends and potential capital gains.
TFSA and RRSP both offer tax advantages to help you achieve your savings and investment goals. When choosing to use either one, it's crucial to understand the differences and advantages of these two types of accounts.
RRSP is specifically designed to provide you with income in retirement. Your annual contribution limit is based on your previous year's income, with certain adjustments and an annual maximum limit. Your contributions can be used for tax deductions; however, withdrawals are subject to taxation.
TFSA is not specifically designed for retirement and can help you save funds for various goals. Your contribution limit is not tied to your income, and your contributions are not tax-deductible. You can withdraw funds at any time, and these withdrawals are tax-free. You can also re-contribute the amounts withdrawn from your TFSA in subsequent years without affecting your contribution room for those years.
A pre-authorized debit allows the biller to withdraw money from your bank account when a payment is due. Pre-authorized debits may be useful when you want to make payments from your account on a regular basis. On the specified deduction dates, the distributor automatically deducts the predetermined amount from the investor's designated bank account and executes the purchase of the chosen fund.
By setting up a dollar-cost averaging plan with Ai Financial, you can schedule regular deductions from your bank account into your designated investment account (TFSA/RRSP/RESP/Non-Registered, etc.) on a weekly, bi-weekly, or monthly basis. Once you initiate this regular investment strategy, the long-term appreciation of your funds is likely to pleasantly surprise you.
Canadian Investment Guide: Includes but is not limited to account introductions, basic investment concepts, investment tips, and more.
With segregated funds, AiF's professional investment capabilities deliver double-digit annual returns.
Tailored strategies based on individual investment goals for stable profitability.
Regularly organizing offline and online events aimed at enhancing financial literacy among Canadians.
Canadian Investment Guide: Includes but is not limited to account introductions, basic investment concepts, investment tips, and more.
With segregated funds, AiF's professional investment capabilities deliver double-digit annual returns.
Tailored strategies based on individual investment goals for stable profitability.
Regularly organizing offline and online events aimed at enhancing financial literacy among Canadians.
For more information on how investing in a TFSA can help you reach your savings goals, book an appointment at a time that’s convenient for you.
You can call (647) 323-3231 for more information