Earlier this week, the amount Canadians can stash away each year in their tax-free savings account (TFSA) increased by $500. Starting January 1, 2013, the federal government now allows us to contribute $5,500 in our TFSA each calendar year. You might recall when this great account was introduced in 2008 the federal government said it intended to index the contribution limit to inflation in $500 increments. Well, they made good on their promise. Here is a refresher about this account:
- Any adult Canadian can open a TFSA and use it for a range of investments.
- All interest, dividends, capital gains and income earned is tax-free. Any money contributed to a TFSA has already been taxed so it doesn’t get taxed again.
- Unused contribution room is carried forward indefinitely.
- Spouses can contribute to each other’s TFSAs.
- You can have multiple TFSA accounts at different financial institutions BUT it is up to YOU to keep track of your contributions each calendar year. The government will know if you go over the limit and they will ding you an over-contribution fee.
Remember – whatever investments are allowed in an RRSP account are also allowed in TFSAs – so make the most of it!
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