Canadian Fixed Income Investing

TFSA 101 – Understanding the New Canadian Investment Option

Early in the 2008 tax year, the Canadian government announced the availability to invest into a new type of account, the Tax Free Savings Account (TFSA), starting in 2009. This option will be available to investors over the age of 18 who have a SIN. This new investment option is not designed to replace current available investment options, but is intended to act as a supplement to an investor’s overall financial portfolio.

The TFSA account was created to supplement or partner with current RRSP accounts and current pension plans offered by the Canadian government. Investors are primarily excited about the tax free options of this new account, allowing for more strategic tax planning to occur for both current investing and future withdrawals.

Beginning in 2009, individuals will be able to contribute up to $5,000 per year and married couples will jointly be able to contribute $10,000, with each individual eligible to contribute into their own account to the maximum level. But, unlike traditional investment accounts, individuals will be able to re-contribute funds into the account if they make withdrawals in the future. What this means is that if an investor makes a short term withdrawal to pay for a vacation or their children’s education, they can replace the funds up to their maximum allowable contribution level. This is a great feature for anyone who wants a tax free, short term savings type account that can also earn tax free interest or growth.

This flexibility in terms of use differs from the more traditional investment type account which is designed solely for retirement, the RRSP. The TFSA was not however designed to replace the RRSP account, but to be a valuable addition to the traditional and widely used investment account.

There are a variety of investments that an investor can select within a TFSA account, including:
Cash
Bonds
GICs
Stocks
Mutual funds

Unlike taxable investments, the dividends generated or the growth experienced within a TFSA account is not taxed, but is sheltered. And, in addition to tax free growth, the withdrawals from a TFSA are also tax free.

A unique feature of the TSFA account is that withdrawals are eligible for replacement. What this means is that an individual or family could save money into the TSFA, make a withdrawal to purchase a home or a vehicle and then they could replace those funds to be used for retirement in the future. This account flexibility provides a variety of options for saving money and for sheltering assets from taxation on an annual basis.

So, beginning in 2009, investors of all ages will be considering whether or not the TFSA account is suitable for their investment goals. With so many features and benefits to consider, financial professionals are advising individual and families to begin educating themselves so that if they decide to take advantage of this investment account, they can do so beginning in January when eligibility begins.

Author: J Welch

Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help. That’s why the Government has introduced a new Tax-Free Savings Account (TFSA). It’s being heralded as the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).

The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation. With the TFSA Canadians from all income levels and all walks of life can benefit.

For more information, or to claim your Special 24-page Independent Review of the Tax Free Savings Account visit: http://taxfreesavingsaccountinfo.com/

Article Source: http://EzineArticles.com/?expert=J_Welch

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