Last week, in the Tax-Free Savings Accounts to help you keep your money – part I post, I answered some of the questions about the Tax-Free Savings Account or TFSA that the Canadian government had proposed in the 2008 budget. In 2009, you will be able to save up to $5,000 every year without being taxed on interest earned. This is great news for savers, especially retired individuals.
Below are answers to some more questions about the TFSA and how it will impact your retirement plans.
Will money earned in a TFSA or withdrawn from a TFSA be considered income for tax purpose?
No, when computing income for tax purposes, you will not have to include money earned in a TFSA or withdrawn from a TFSA.
Will contributions and withdrawals affect my Old Age Security or Guaranteed Income Supplement benefits?
No, any contributions or withdrawals will NOT reduce other benefits that are based on your individual income level.
Since it’s called a tax-free savings account, do I have to put my money in a savings account?
No, you can hold the same investments as a RRSP. This means you can invest in mutual funds, publicly traded securities, GICs, bonds and certain shares of small business corporations. Check with an account or tax lawyer for more information on this.
What investment vehicles will I be able to use?
No more stuffing the cash under your mattress! You’ll be able to open a savings account, invest in mutual funds, publicly traded securities, GICs, bonds and certain shares of small business corporations..tax free!
Can I borrow money to invest in an TFSA and deduct the interest payment?
No, interest on money borrowed to invest in a TFSA would NOT be deductible for tax purposes.
If you have any more questions, please ask them here.
