Nearly 60 per cent of Canadians have opened a TFSA since it was introduced. The Tax Free Savings Account is an essential tool in building wealth. As the name infers, it allows one to avoid paying tax on their investment gains. There are a few important things to keep in mind when using a TFSA;

1. Understand the difference between an RRSP and TFSA: A recent TD Bank survey found 27 per cent of Canadians do not know the difference between a TFSA and a Registered Retirement Savings Plan (RRSP). Tax Free Savings Accounts do not provide tax deductions, rather provide tax exemptions.
2. If you’re maxed out, don’t contribute in the same year your withdraw: TFSA contribution room is only restored in the next calendar year. Over-contributing can result in penalties.
3. Know that capital losses can’t be utilized: Typically if you have a loss on an investment, you can use that against your income. In a TFSA, there are no taxes on gains but no tax deductions on losses.

For further tips on utilizing your TFSA, read here. Contact us today if you want to optimize your financial future.