If you have never made contributions to your Tax Free Savings Account (TFSA), you would have a 2014 limit of $31,000. In 2015, the limit will be increased by $5,500 to total $36,500.
The TFSA is a great vehicle that was introduced in 2009 to help Canadians save for short and long term goals. All deposits into a TFSA grow tax free and can be invested in a wide range of investment products. (i.e. mutual funds, savings accounts and segregated funds)
Canadians should manage their contributions limits carefully, as there are significant penalties for over-contributing. If you have a growing TFSA account and you make a withdrawal this year, you can replace the full value of your withdrawal in the following calendar year plus the annual addition to the contribution limit. Here is a formula to help you figure out your contribution room for next year:
Unused TFSA contribution room to date + Total withdrawal made in this year + next year’s TFSA additional room = TFSA contribution room at the beginning of next year
Here is an example to clarify this formula. If you have a maxed out TFSA with $31,000 in contributions plus $9,000 in growth and you decide to withdraw the full account value of $40,000 this year. You will have $40,000 in room the following year plus the annual limit increase of $5,500. Making your total contribution limit $45,500. If the value of your TFSA drops and you withdraw the full value, your contribution room falls accordingly.
Less than half of Canadians have a TFSA. They are ideal for saving for a new home, an emergency fund, retirement or even Christmas. Is it time you took advantage of this great savings vehicle to accelerate your financial success?
Mutual funds are offered through Investia Financial Services Inc.
Insurance solutions provided in Ontario and New Brunswick, through Heidi Blondin Financial / Qualified Financial Services.
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was prepared by Heidi Blondin who is a Certified Financial Planner® (CFP) at Heidi Blondin Financial a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.