Financial Foundations: TFSAs

Hi! I’m Nick, and welcome to Financial Foundations. I’m going to cover several concepts of investing that may seem confusing and show you that they’re actually simpler than you think. Let’s talk about TFSAs.

TFSAs, or tax free savings accounts, were established by the Federal Government of Canada in 2009 to provide tax benefits for investors. Any income earned from investing, such as interests, dividends, and capital gains, is not taxed when earned within a TFSA. Additionally, when you withdraw money from a TFSA, you are not taxed on that money either.

However, you do not receive a tax deduction when you make a contribution to a TFSA. This means that you won’t get the tax money that you already paid on your money back when you contribute some of your income to a TFSA.

Unfortunately, there is a limit to how much a person can contribute to a TFSA. However, if you look at this chart you’ll see that the annual contribution limit has increased over time, from its original amount of $5,000 in 2009 to $10,000 in 2015.

Now, if you don’t maximize your TFSA contribution in a certain year, you are allowed to carry forward that unused amount and make a larger contribution in any future year.

For example, let’s say that it’s 2015 and you are 27 years old. You have never contributed to a TFSA before but are wanting to open one. The maximum amount that you could contribute in 2015 is $41,000. Where does this number come from? Well, we add $5,000 per year for 4 years from 2009 to 2012, plus $5,500 per year for 2 years from 2013 to 2014, plus $10,000 for 2015.

In most provinces you must be 18 years old to open up a TFSA. However, in British Columbia you must be 19 years old. Now, you can contribute to your TFSA to any age you desire. So this means you could be 90 years old and still contribute to your TFSA.

There’s TFSAs for you! I’m Nick and thanks for joining me on Financial Foundations. See you next time!