Who doesn’t like free stuff? We do! And even though there have been some changes to the Tax Free Savings Account (TFSA) rules, the net effect is that the government has set up a program that results in some free stuff for your benefit.
The long term benefit of avoiding tax on your investment gains can be significant. All interest, dividend income and capital gains derived inside a registered TFSA accrue without taxes payable when you withdraw them.
The limits for putting new funds into a TFSA will stand at $5,500 for 2016 and 2017.
If you have never put any money into TFSA, that maximum contribution limit stands at $52,000, which is the sum total of all of the yearly investment limits since the government implemented this program.
It is hard to overstate the effect that not paying tax on your investment returns has on longterm portfolio values.
For example, an investment rate of return of 10% may become 7% after tax.That means that the non-taxed investment will be worth almost twice as much over a 20 year time frame.
A TFSA can be an additional, powerful tool in any investment portfolio – offering advantages that other registered accounts do not.