A Tax–Free Savings Account is an easy way of growing your money short–term and long-term
(NC)—Before the Tax–Free Savings Account (TFSA) came along, you had to choose between having the flexibility of a savings account, and the profitability of a registered retirement savings plan (RRSP).
But with the TFSA, you can put in money, make earnings on that money tax free, and best of all, you can buy investments within a TFSA, just like you can with an RRSP.
The big difference is that that the money you put into a TFSA can't be deducted from your taxable income like with an RRSP, but whether short term or long term, you can work the TFSA to your advantage.
Short–term: you are saving money to buy a car or do renovations.
The flexibility of a TFSA will work in your favour. Choose the investment tool that you want within a TFSA to make your money grow. When you are ready to use the money, take out as much as you want, without paying tax.
Long–term: you are managing your money with an expectation of using it ten or twenty years down the road.Not only can you keep making income on your money without tax, the contribution room for a TFSA works in your favour.
In addition to any unused room getting carried forward every year, you don't lose your contribution room when you withdraw money from a TFSA. The amount you withdraw “frees up room” and is added to your contribution room in the following calendar year.
Is there something you are planning for? Talk to your bank. Contact the Canada Revenue Agency to learn the rules: www.cra.gc.ca/tfsa.