Community News

Friday, January 13, 2012

Don't forget about Tax-Free Savings Accounts

With the RRSP deadline approaching, it’s easy to forget that Tax-Free Savings Accounts (TFSAs) are also a viable retirement savings option. In fact, in some cases a TFSA may be preferable to an RRSP for some investors.

TFSAs were introduced as a new retirement savings tool in 2009 and, since that time, only a small portion of eligible Canadians have opted to open an account. That may partially be due to a lack of understanding of what TFSAs offer, as well as the lure created by the tax refund associated with RRSP contributions.

It’s important to remember that contributions to RRSPs are made with pre-tax income. The refund you receive is the taxed portion of your contribution. TFSA contributions are made with after-tax income and therefore there is no refund. However, unlike with RRSPs, you can withdraw funds from your TFSA tax-free, at any time. This flexibility when it comes to withdrawals can be a nice feature to have in a retirement savings vehicle should you encounter an unforeseen expense that you weren’t prepared to pay for.

Each year after the age of 18, you’re allowed to contribute up to $5,000 to a TFSA. Like an RRSP, a number of different investments can qualify for a TFSA, including GICs, high-interest savings accounts, stocks and bonds.

If you’d like more information on TFSAs and the pros and cons as they relate to RRSPs, please contact our credit union at 954-7450 and arrange to speak to an investment advisor.

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