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The TFSA: Why Does it Make Sense for You (Part 3 of 4)
Posted on January 17, 2009 at 2:48 pm
Filed Under Financial Planning, Investment Planning
As I sit here on my couch writing this post, I realize how personal this question really is.
We have discussed what the Tax Free Savings Account (TFSA) actually is and how it works, and now we need to look at why it may in fact make sense for you. The reality is that this type of account can work for just about everyone, but it is essential that you know why you want to take advantage of this new investment vehicle.
That said, there are multiple reasons and ways that you can make this account work for you. In order to keep this post short and to the point, I’ve chosen to try and put some examples together in the form of bullet points. Some of the reasons this could make sense for you could be:
- You want to save additional retirement funds outside of your current RRSP or pension plan
- You are actively saving for a specific goal, such as a new home or vacation, and need total liquidity
- You own high risk, potentially high reward stocks or funds that could grow substantially and would like to ensure not $1 of the growth is taxable
- You are saving money to pay down your mortgage and would like to invest it throughout the year with the hope of growing your account value and creating a larger deposit on your mortgage
- You are receiving retirement income from your CPP or OAS, your RIF or your pension and are not in need of the full amount but do not want to pay additional tax on the growth over time
Your Take-Away: By no means is the list above exhaustive in nature. There are multiple reasons for a Canadian to invest in the new TFSA, but it is very difficult to specify which one will make the most sense for you. The only question you need to ask yourself is “do you want to eliminate the taxes you currently pay on your investment growth?” If so, looking at the TFSA is a complete no brainer and something that certainly deserves a small investment of your time.
A couple of more posts to come on the new TFSA, but until then, have a Wonderful Weekend.
Chris
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