One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?
Here’s the good news – it doesn’t have to be an either or choice. Why not do both? Below are the features of both plans to help you understand the differences.
Tax Free Savings Account (TFSA)
- Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income. There is no maximum age for contribution.
- Maximum contribution is $5,500 per year starting in 2013 ($5,000 per year for the period of 2009-2012). The contribution must be made by December 31st.
- There is carry forward room for each year in which the maximum contribution was not made.
- The deposit is not tax deductible, but the funds accumulate with no income tax payable on growth.
- Withdrawals may be made at any time on an income tax-free basis. Withdrawals create additional deposit room commencing in the year after withdrawal.
by Larry MacDonald for Money Sense Magazine
At the start of the year, the annual contribution limit for Tax-Free Savings Accounts rose by $500, allowing Canadians to shelter $5,500 in investments from tax each year, in addition to whatever RRSP room they may have. The Conservatives plan to go even further—if the federal government balances its books, something expected by 2016, it has promised to raise the TFSA contribution ceiling to $10,000 a year. But left-of-centre policy wonks oppose expanding contribution room. They say TFSAs favour the wealthy and lifetime contributions should be capped. Could they be right?
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Many of us set New Year’s resolutions for ourselves and often those resolutions have to do with finances. January is the month we say, “Ok, this year I am going to save more and spend less”. This article won’t tell you how to spend less, but it will outline two government sponsored programs available to help you save for retirement or even just a rainy day! Of course these are not the only vehicles you can accumulate money with – those include anything from putting dollars under the mattress to the most sophisticated tax shelter schemes – but these two are the most popular. Read more
Learn how topping up TFSAs prudently can reap big rewards.
by Julie Cazzin, for MoneySense
To maximize the after-tax value of your estate, you probably know you and your spouse should move as much money as possible from non-registered accounts into TFSAs. “Proper estate planning requires understanding the tax consequences of different investments,” says Jason Heath, a fee-only adviser with Objective Financial Partners. “Topping up TFSAs prudently can reap big rewards.”
But with TFSAs, the devil is in the details. When you complete an application to open your TFSA, there’s a section where you can fill in the name of your “successor holder.” Only your spouse or common-law partner can be your successor. Like the “successor annuitant” on a Registered Retirement Income Fund (RRIF), the successor holder replaces the TFSA holder upon death and the plan continues with all rights passing to the successor. That means your TFSA continues growing tax-free until your successor dies.