Many Canadians don’t know how to get the most out of a TSFA
By Jennifer Hughes
Ten years after Tax-Free Savings Accounts (TFSAs) were introduced, an Ipsos poll of more than 2,000 Canadians has shown that more of us now have TFSAs (57%) than RRSPs (52%). But the same poll also showed that 43% don’t see TFSAs as useful for investing and don’t take full advantage of their benefits; 42% use their TFSA largely as a basic savings account rather than as a way to grow their money via investments. This may have to do with the fact that few actually understand what TFSAs do and how they can help lower-income Canadians.
TFSAs have been around since 2009 and allow you to save and earn interest tax-free. Unlike contributions to an RRSP (Registered Retirement Savings Plan), money you put into a TFSA is not tax-deductable, but again unlike as with RRSPs, withdrawals aren’t taxable. A withdrawal from an RRSP can trigger a clawback of benefits such as Guaranteed Income Supplement (GIS) and Old Age Security (OAS); TFSAs withdrawals won’t affect income benefits and any interest earned is tax-free.
“The true advantage of contributing money to your TFSA is to help you reach your goals, not just to have a short-term savings account,” director of RBC’s Financial Planning Centre of Expertise Stuart Gray said in a statement. TFSAs can be excellent retirement-planning tools, and according to the poll, that’s 38% of us are using them for.
TFSAs are becoming increasingly popular. According to the survey, more than half (64%) of Canadians over the age of 55 would prefer to invest in a TFSA than in an RRSP (17%) if they could choose only one. However, it seems that many Canadians need to learn more about what TFSAs can do.