Tax Free Savings Accounts

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If you are thinking of investing this year, you are in for some slightly good news. CRA has increased the TFSA limits that you can invest. They do this every year due to indexation.

The annual TFSA contribution limit for 2019 will be increased to $6,000 (from $5,500) due to indexation. For those who have been eligible to build contribution room since inception of the program in 2009 and have never contributed, the total maximum room as of January 1, 2019 is $63,500.

If you’ve heard of a TFSA before or maybe have one, then you know there are some restrictions on what you can put in. If you are unfamiliar with them, then here is a quick run down on what a TFSA is:

A TFSA (Tax Free Savings Account) is a special savings account put in place by the federal government to allow Canadians to save money tax free. The interest you earn on regular savings accounts is typically taxed, but the interest in these TFSA accounts are tax free meaning you do not need to pay tax on the interest. Think of a TFSA as a short term savings plan and RRSPs are long term retirement plans.

Anyone who is over the age of 18 and has a valid Social Insurance Number can contribute to their own Tax Free Savings Accounts. Unlike RRSP’s (which we will discuss in a later blog post), only YOU can contribute to YOUR OWN TFSA. You can give money to someone to invest in their TFSA, but only you can deposit funds into your own TFSA.

This is where the limit comes into play (as stated above). You can contribute up to your limit. If this is the first time you are depositing funds into the account, then your limit would be $63,500. To calculate your limit, you would calculate the unused portion from the prior year, add any withdraws from the prior year, and add your contribution limit for the current year.

If you over contribute for the year, you will be taxed on the amount you over contributed which is 1% per month you are over (so don’t over contribute!).

A TFSA can be a great savings tool rather than a way to reduce your taxes. We recommend setting up an appointment with a financial planner who can walk you through the ins and outs of a TFSA and set one up for you! If you are in Calgary, we can recommend a great financial planner. Feel free to reach out to us!

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