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How do I Maximize my Tax-Free Savings Account?
Every year, thousands of Canadians do not maximize their Tax-Free Savings Account, losing out on precious savings. However, many choose to use a low-interest savings account to save as opposed to their TFSA and as such, may be making a big mistake. We understand that determining the best way to save may be overwhelming, but it doesn’t have to be. We’ll help you plan a stress-free savings strategy so you can rest assured knowing you’ll
have enough saved when the time comes.
Why Should I Prioritize my TFSA?
Low interest savings accounts entail a low interest rate, and as such, any money contributed into the account will not grow quickly. As a result, you miss out on the growth potential that investing your money through a TFSA could have.
Interest rates are usually lower than the rate of inflation which means that the purchasing power of money put into a low-interest savings account could decrease over time.
Money in a low-interest savings account could be redirected into investments in a TFSA with greater growth and potential such as stocks which pay dividends each fiscal year.
Interest, dividends and capital gains earned in a TFSA are all tax-free for life.
Generally, your TFSA savings can be withdrawn from your account at any time, for any reason, and all withdrawals are tax-free.
How can I Start Maximizing my TFSA now?
1. Do not use your TFSA to save for short term goals. The aim of a TFSA is to earn as much tax-free income as possible and as such, requires a time concept in order for this to happen. The longer your TFSA has to grow, the more tax-free income will be generated, meaning more money for you in the long-term.
2. Use a TFSA instead of a regular savings account. Many Canadians have a significant amount of money sitting in their TFSA as cash. Just because a TFSA is a savings account, does not mean that it can only be used to hold cash. Your TFSA can hold a variety of investments including, stocks, bonds and GICs.
3. Take advantage of income splitting opportunities. The higher earner in the family can gift money to a spouse or partner which can then be contributed to their TFSA. This has no impact on any spousal tax credits.
4. Automate your TFSA contributions. Every year, many Canadians do not contribute the maximum amount they can in their TFSA, losing out on precious room. One way to ensure that you are maximizing the room in your TFSA is to enable automatic deposits into your account. This will help your TFSA grow and maximize your money in the long-run.
Interested in Learning More?
If you want to learn more about how to maximize your Tax-Free Savings Account based on your own financial situation, fill out the form. Someone from our team will get in touch with you to schedule a complimentary call to discuss how you can use a Tax-Free Savings Account to meet your financial goals.