TFSA – It’s a Gift and it’s Tax Free

TFSA (Tax Free Savings  Account) as the name suggests is a Tax Free Savings Account. But this is just plain WRONG. The banks already have accounts for that. So from this day forward you will refer to this account as a Tax Free Investment Account. An account for investments, not cash, braindead GIC’s or for use as an emergency fund. Got it. 

Good news, in a couple of weeks you can shovel another $6,000 into it. You might be thinking that’s great but only rich people have $6,000 laying around to invest. I would argue that if I can do it anyone can. You will have to make some smart choices regarding your spending and if you are not currently contributing the max to your TF(I)SA, there are mucho, mucho compelling reasons to take full advantage.

First, the TF(I)SA is the most equal of all government investment programs. And it’s the best investment vehicle (a gift) ever given to Canadians. Unlike an RRSP, it does not matter how much money you make everyone is treated equally and is given the same contribution room.

You can also withdraw from your TF(I)SA tax free and any cash you take out does not count as income. This is important when you add a few wrinkles as extra income can effect your GIS/OAS entitlement.

Another big advantage over the RRSP is the ability to withdraw funds and stick them back in without penalty. The only rule is that a withdrawal one year can only be made up until the next. 

You can also gift money to your spouse and adult children to maximize TFSA contribution room. Just make sure you like them. 

The last and most compelling reason to maximize your TF(I)SA is tax free income for life.

If you and your significant other max your TF(I)SA and each add six grand a year for the next 30 years and achieve a 5.2% growth rate, your pot of gold will be worth at least $1.45 million. This amount will generate in excess of 60 grand in tax-free income for the rest of your lives without depleting the principal.

To achieve similar results with an RRSP you would need to almost double that investment and that would put this type of scenario out of reach for all but a few with high paying jobs. The TF(I)SA is a great equalizer.

If you are currently maximizing your TF(I)SA – good for you. If you are not currently taking full advantage of this gift you are seriously putting your future self at a disadvantage. Don’t do that. You need to cancel that cable subscription, hold off on those Louboutins, and that second trip to Cuba. And if you do nothing else this next year but max out your TFSA, it will be a successful 2019.