How to use your TFSA in challenging times
(NC) Tax season is quickly approaching, but this year may look a little different for some. With the uncertainty of the pandemic, nearly half of Canadians say that saving for a rainy day is more important to them right now than retirement savings, according to a recent survey by TD.
A Tax-Free Savings Account is a popular savings vehicle. Not only can it support long-term goals like retirement, it can also be ideal for short-term savings and rainy-day funds.
Here, Jared Jarman, Associate Vice President, Specialized Advice Acquisition at TD, answers commonly asked questions about TFSAs.
1. What is a TFSA?
A TFSA is designed to help you save money for any goal – this can include big-ticket items such as a new home or vehicle, travel, a wedding or even long-term planning for retirement. The money you put into this account has already been subject to tax, so withdrawals are tax free.
2. How does a TFSA work?
One of the key benefits is flexibility in terms of when you can withdraw your money. If you withdraw from your TFSA, you do not permanently lose your contribution room, which could be helpful if your circumstances change. Speak with an advisor or financial advisor before withdrawing any funds to ensure you understand the implications and how this impacts your contribution room.
3. What are the contribution limits?
There are government-mandated limits to how much you can contribute every year. Set by the federal government, this annual limit varies each year. In 2021, it’s $6,000 regardless of your level of income.
It’s important to be mindful of how much you’re contributing, as any contributions made over your allotted amount are subject to a one-per-cent-per-month penalty. You can carry forward any uncontributed amounts into future years indefinitely.
If you're interested in learning more about TFSAs, Jarman suggests speaking with a TD financial advisor who can help you assess your options through our website, via phone or at a branch near you, including our new virtual appointment option.