We often hear statements about TFSAs such as "A TFSA is only interesting for short-term projects," "A TFSA is less advantageous than an RRSP" and "I can withdraw money from a TFSA at any time." Some of these statements are true, some are false, and some need to be qualified, as their accuracy will vary depending on the individual's situation. Here are some answers to frequently heard statements to help you see things more clearly:
FALSE. The TFSA is an investment vehicle for both short/medium term projects and to supplement retirement savings. It is often associated with a short-term project because it allows you to make withdrawals freely without paying taxes on the amounts withdrawn. However, you can also use it to supplement your retirement savings. Even after your 71st birthday, which is the maximum date for converting your RRSP into an RRIF, the TFSA is still interesting because there is no age limit for contributing to it.
FALSE. You only need to be a Canadian resident 18 years of age or older with a valid Social Insurance Number (SIN) to contribute to a TFSA.
FALSE. You can contribute to both an RRSP and a TFSA and still meet the contribution limits for both investment vehicles. The TFSA and RRSP are complementary savings tools.
TRUE. The TFSA is an investment vehicle that can hold different types of products such as Guaranteed Investment Certificates (GICs), mutual funds or stocks and bonds as long as they are eligible investments.
FALSE. Withdrawals made in one calendar year will be added to your contribution limit for the following year. For example, if you withdrew $2,000 from your TFSA in 2021, you will be able to contribute that $2,000 plus the rest of your unused contribution room as of January 1, 2022. In addition, you don't pay tax on your withdrawals because they are not considered taxable income.
FALSE. Unlike an RRSP, you can keep your TFSA even after age 71 and continue contributing to it while respecting the contribution limit. What's more, withdrawals from your TFSA and the returns generated have no impact on your eligibility for government benefits such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS). It can make a real difference if your retirement income is based primarily on these programs.
Since the choice of your investment strategy depends on your situation and your financial goals, feel free to contact your advisor to help you evaluate your portfolio and the type of investments that might be right for you.
Laurentian Bank: Laurentian Bank of Canada.
LBCFS: LBC Financial Services Inc.
Mackenzie Investments: Mackenzie Financial Corporation.
TFSA: Tax-Free Savings Account.
RRSP: Registered Retirement Savings Plan.
RRIF: Registered Retirement Income Fund.
SIN: Social Insurance Number.
GIC: Guaranteed Investment Certificate.
OAS: Old Age Security.
GIS: Guaranteed Income Supplement.
New investment accounts are offered by LBCFS which is a subsidiary of Laurentian Bank. LBCFS is a wholly owned and a legal entity distinct from Laurentian Bank and Mackenzie Investments. Mutual funds (« funds ») and the financial planning service are offered by LBCFS. Mutual funds are part of the Laurentian Bank Group of Funds managed by Mackenzie Investments. A Laurentian Bank advisor is also a licensed LBCFS Mutual Fund Representative.
Commissions, trailing commissions, management fees and other expenses all may be associated with mutual fund investments. The funds available through LBCFS are not insured by the Canada Deposit Insurance Corporation, Canadian securities regulators, or any other public deposit insurer. In addition, the funds are not guaranteed in whole or in part by Laurentian Bank, B2B Trustco, or any other entity. Nothing guarantees that the fund will maintain its net asset value per unit at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual fund values change frequently, and past performance may not be repeated. Please read the simplified prospectus or Fund Facts before investing in mutual funds.
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