Do you want to start saving for a car? A vacation? A renovation? If you have goals you want to reach within the next five to 10 years you need your savings to grow as quickly as possible.
In a regular, non-registered account, you pay tax on every dollar of interest, dividends and capital gains which slows down your returns.
There’s another option that can help you reach your financial goals sooner. In a Tax-Free Savings Account (TFSA):
- You don’t pay tax on interest , dividends and capital gains
- All your money keeps growing
- Your savings accumulate faster
- You can contribute up to a maximum of $5,500 each year into a TFSA
Here’s an example; let’s say you:
- Deposit $500 into a TFSA
- Add $50 every week
- Earn an average annual return of 5%
After one year, your tax savings will be $20.
That doesn’t seem to be much, but if you keep doing the same thing for:
- Five years, your tax savings will be $413 and you’ll have $15,520 to spend on whatever you want
- For 10 years and you’ll save $1,843 in taxes and accumulate $34,765*
Best of all, unlike RRSP withdrawals, TFSA withdrawals are tax-free. So, when you’re ready, you can use all the money you’ve saved and invested toward whatever you’ve been saving for.
To make the most of your TFSA opportunity, follow these steps:
- Define your goals for the next five to 10 years
- Contribute up to the maximum allowed each year
- Watch your savings grow faster because they’re growing tax-free
* For illustration purposes only. These examples are based on an Ontario resident with annual income of $60,000.
Note: This article is for illustrative purposes only.