Tax-Free Compounding:
Investments inside a TFSA grow tax-free. This lets your investment compound faster without the drag of annual taxes. How much is this tax-free compounding worth? Potentially $100,000’s.
Someone who contributes about $3,500 to their TFSA each year for 40 years will have an additional $358,963 in tax-free growth!
Check out the two charts below for more details.
No Barrier To Withdrawals:
TFSA withdrawals can be made at any time and without any withholding tax.
Share Contribution Room With A Spouse:
Because TFSA contributions are made with post-tax dollars the government doesn’t care if gift money to your spouse to make contributions to their TFSA. This means you can share contribution room with your spouse and maximize their tax-sheltered space too. (You cannot do this with an RRSP, unless you want to get audited that is)
Contribution Room Is The Same, Regardless Of Income:
Regardless of your income, the contribution room for a TFSA is the same. This is great for low and moderate income earners. For these households it’s possible to tax-shelter a higher % of their income. The average Canadian family can shelter 32% of their income in tax sheltered accounts. Thanks to the TFSA, this increases for low income earners.
Contribution Room Returns The Next Year:
When you make a withdrawal from your TFSA the contribution room will come back the following year on Jan 1st. This means you can use a TFSA to save for short/medium term goals like a down payment or a wedding.
No Mandatory Withdrawals:
There are no mandatory withdrawals with a TFSA. You can let a TFSA grow tax-free for your entire lifetime. RRSPs have forced withdrawal rates after age 71.
Withdrawals Won’t Impact Government Benefits:
Making a withdrawal from a TFSA won’t count as income. This means there is no impact on government benefits.
This is especially helpful for low-income seniors who receive benefits with high claw back rates, sometimes as high as 50% to 75% of the next dollar earned (read more about high marginal effective tax rates for retirees).
No Tax Upon Death:
Because TFSAs are tax-free there is no tax upon death. This means you can transfer your assets to your children without any impact from taxes.
Related Posts:
Annual $3,517 Post-Tax Contribution
$865,006 Cumulative Withdrawals (After-Tax)
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Annual $3,517 Post-Tax Contribution
$506,043 Cumulative Withdrawals (After-Tax)
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