Making the most of your investments – after tax

 

As we enter the second year of the COVID - 19 pandemic, it’s more important than ever to make the most of life. You may be finding new ways to stay connected with those closest to you. Or perhaps you’re discovering different ways of working and doing business. When it comes to taxes and your finances, it’s also important to make the most of it, especially during these times of economic uncertainty. One way you can do that is by making the most of what you earn after tax with a Tax Free Savings Account ( TFSA ).

 

When it was first introduced in 2009, the Tax Free Savings Account, with its initial contribution limit of $5000, may have seemed small relative to a Registered Retirement Savings Plan ( RRSP ) with its larger contribution limit. But the TFSA was big on potential. Like RRSPs, TFSAs offered some key advantages, most notably the ability to earn tax free investment income. However, unlike an RRSP, you were able to withdraw any amount from your TFSA anytime you wished tax free. Plus, you automatically gained new contribution room every year regardless of your income, provided you were a Canadian resident aged 18+. Today, 12 years later, your TFSA contribution room could be as much as $75,500 assuming you have never contributed, making it a very important part of your financial plans.

 

TFSA Tax Tips :

 

• If you haven’t maximized your TFSA contributions yet, consider doing it. Not only do your contributions grow to tax free, but if needed you can make tax-free withdrawals at any time for any reason. What’s more, the amount you withdraw is added back to your available contribution the following year.

 

• If you have adult family members, consider gifting them money to contribute to their TFSAs. A family of four each, with a contribution room building since 2009, could have a total of $302,000 in contribution room as of January 1, 2021.

 

• If you receive payments from a Registered Retirement Income Fund ( RRIF ), and don’t need that income at the present time, consider contributing them to your TFSA ( assuming you have the contribution room ). That way, the money from your RRIF payments can earn tax free income.