One of the key ingredients in my million endeavour is to maximize my Tax Free Savings Account. If you have a general idea of what a TFSA is but still unsure of how it works, I will do my best to explain it for you.
A Tax Free Savings Account (also known as TFSA) is exactly what the name suggests. It is a savings account available to every Canadian resident that is over the age of 18.
The money that is saved up in your TFSA is not subjected to any tax-deduction. You can withdraw, contribute and grow your savings account without having to pay any taxes. The premise behind this account is to help you save up money faster.
How much can I contribute to my TFSA?
The TFSA was introduced in the year 2009. If you were over the age of 18 in 2009, your contribution room in 2014 is now $31,000. Since 2009, the TFSA contribution limit has increased by a minimum of $5000.
2009 – $5000
2010 – $5000
2011 – $5000
2012 – $5000
2013 – $5500
2014 – $5500
Your TFSA limit will carry forward any unused contribution into the future. This means that if you haven’t contributed any money since 2009, you are free to contribute the full $31,000 in 2014.
Can I withdraw from my TFSA?
You may withdraw any amount from your TFSA when you choose to. However, keep in mind that you won’t be able to re-contribute that amount until the following year.
Example: If you currently have the full $31,000 amount in your TFSA and you decide to withdraw $6000, you won’t be able to contribute that $6000 back until 2015. This amount is on top of the new contribution limit for 2015.
Is it possible to have more than the contribution limit in my TFSA?
Yes, as long as you don’t contribute more than your limit. This surplus in your account may come from the interest or returns on investments you have in your account.
How can I make investments in my TFSA?
You may purchase mutual funds, stocks and bonds in your TFSA. This will help you grow your account faster and the interest/returns you gain do not count as contributions.
If you are just starting to improve your finances, I would suggest that you start off holding a managed mutual fund portfolio in your TFSA with one of the big banks. I cannot emphasize the importance of maximizing your TFSA for those interested in achieving financial freedom.
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