Frequently Asked Questions
What are the benefits of a
TFSA?
Who is eligible for a TFSA?
When can I open a TFSA?
How is a TFSA different from an
RRSP?
What kind of investments can I hold in
my TFSA?
Can I hold a segregated fund in my
TFSA?
What can I spend the money on?
How much can I contribute?
What if I can't contribute the full
$5,000?
Are there any penalties for contributing more
than my limit in a particular year?
When can I withdraw my money?
Do I have to pay income tax on my
withdrawals?
Once I've withdrawn my money,
is that contribution room lost?
Are my contributions tax-deductible, like
RRSP contributions?
How much can I save?
Questions and Answers:
Q: What are
the benefits of a TFSA?
A: TFSA allows you to save up to $5,000 each year and still have
the flexibility to withdraw your savings at any time and for any
purpose. Income and Growth on these savings are tax-free through a
TFSA, you can put your savings into eligible investments and not
pay tax on the investment income you earn.
Q: Who is eligible
for a TFSA?
A: TFSAs are available to all Canadian residents who are:
- 18 years of age or older
- Hold a valid Social Insurance Number (SIN)
If you live in British Columbia, Newfoundland and Labrador, Nova
Scotia or New Brunswick, then you can't open a TFSA until you are
19. However, you will accumulate contribution room from the time
you are 18.
Q: When can I open a
TFSA?
A: You can open a TFSA at any time and you can start making
contributions into your account immediately.
Q: How is a TFSA
different from an RRSP?
An RRSP is primarily intended for retirement, while the TFSA can
be used for any purpose.
Both offer tax advantages, but they have key differences:
- Contributions to an RRSP are deductible and reduce your income
for tax purposes. In contrast, your TFSA savings will not be
deductible
- Withdrawals from an RRSP are added to your income and taxed at
current marginal tax rates. Your TFSA withdrawals and growth within
your account will not-they will be tax-free
Q: What kind
of investments can I hold in my TFSA?
A: You can hold many of the same investments you hold in your
RSP in your TFSA, including mutual funds.
Q: Can I hold a segregated
fund in my TFSA?
A: Yes. We have 14 IA Clarington Guaranteed Investment Funds
(GIF) to choose from.
Q: What can I spend
the money on?
A: Anything you like. A TFSA gives you the option to save for
any purpose.
Q: How much can I
contribute?
A: You can contribute up to $5,000 each year into your TFSA.
However, this amount will increase with inflation in increments of
$500.
Q: What if I
can't contribute the full $5,000?
A: You don't have to contribute the maximum of $5,000 every
year, as the unused contribution room can be carried forward to
future years.
Q: Are there any
penalties for contributing more than my limit in a particular
year?
A: If you contribute more than your contribution limit, you will
pay a penalty of 1% per month on the excess amount.
Q: When can I
withdraw my money?
A: You can make a withdrawal from your TFSA at any time you
want.
Q:
Do I have to pay income tax on my withdrawals?
A: No, you don't have to pay tax on the amounts you
withdraw.
Q: Are my
contributions tax-deductible, like RRSP contributions?
A: No, you can't deduct contributions to your TFSA from your
income as you can with your RRSP contributions.
Q: How much can I
save?
A: If you want to estimate how much you can save with a Tax-Free
Savings account, here is a link to the calculator provided by the federal
government.