Are you struggling to meet your short-term financial goals? If so, consider a
Tax Free Savings Account (TFSA). A TFSA isn’t just for long-term savings and retirement. As the cost of living and general expenses increases each year, a TFSA can help you meet your ongoing savings goals as well, such as saving for:
- Short-term and mid-term goals
- Emergency savings
- Living expenses during parental leaves
Here are 4 ways a TFSA can help you meet your financial goals:
1. Tax-sheltering investments for Canadians 18+
If you are looking for a faster way to grow your savings, a TFSA could be the answer. All Canadians aged 18 or older may open a TFSA and make after-tax contributions whether or not they have earned income. Investments within a TFSA may include:
- Cash
- Guaranteed Investment Certificates (GICs)
- Mutual funds and Exchange Traded Funds (ETFs)
- Stocks
- Bonds
Any eligible investments within a TFSA are tax-sheltered, and grow tax free, while withdrawals aren’t taxed nor are they included in your taxable income. If you've never contributed to a TFSA and were at least 18 years old in 2009 when the TFSA was introduced, you have $63,500 of unused contribution room as of January 1, 2019. [
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2. Achieve short to mid-term goals
If your financial plan includes goals you’d like to reach within the next two to five years, consider a TFSA. Fixed rate savings and shorter-term GIC rates can help you grow savings for short to mid-term goals such as saving for a new car, wedding, down payment, or even a big trip. For example, motusbank’s
3 Year Escalator GIC for TFSAs offers a better rate than a regular savings account and you earn that interest tax-free. It also gives you the option to redeem it on each anniversary date.
3. Build emergency savings
TFSAs can also be a good way to build an emergency fund to deal with unexpected job losses or unforeseen expenses, such as costly car repairs, furnace repairs or replacements, or unexpected medical bills.
Keep these funds within the cash portion of the TFSA. This way, you can access the money when and if you need it. At the same time, you’ll earn interest on that cash. For example, motusbank’s
High Interest Savings Account (HISA) can be held within the TFSA, and it earns a
high interest rate.
4. Supplement parental leave benefits
If you’re concerned your maternity benefits or parental leave benefits won’t support your family while you’re on leave with your new addition, consider supplementing your benefits by withdrawing from your TFSA.
TFSA withdrawals are not taxable income, and don’t count for any federally income-tested benefits, such as the GST/HST tax credit, according to the
Canada Revenue Agency.
Once you return to work and have additional income, you may choose to make TFSA contributions once again so your money can continue to grow tax-free. It’s important to understand that your TFSA contribution room is calculated using your cumulative TFSA room since 2009, less your contributions, plus your withdrawals. [
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Let’s say you withdrew $10,000 in TFSAs this year in 2019 to supplement your maternity leave. Next year, in 2020, this amount would be added to your total contribution room plus the additional $6,000 limit for that year. This is when you could re-contribute the withdrawn amount and make any additional contributions for the year. [
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Don't worry if you can't re-contribute the whole amount in one year, since TFSA room can be carried forward to the future.
Learn more about
investing (and our investment options!) with motusbank.