Whether you like the Conservative government in Canada or not, they brought in an era of excellent tax incentives for Canadians. One of these incentives is called a Tax Free savings account or TFSA for short. The TFSA is a very flexible account in which earned investment income in the account, whether this is capital gains or dividends, will not be taxed. The best part of the account may not only be having money saved tax free but having it withdrawn tax free as well. The TFSA may be the investor’s best friend in 2009. However, very little information can be found about the TSFA on the Canadian Revenue Agency website.

Here is some information available on TSFA:

Tax Free Savings Account Information

-You must be over the age of 18 to qualify for the savings account.

-The 5000$ max contribution will be index to inflation in increments of 500$

-A TFSA is transferable upon your death

-You may contribute to your spouse’s TFSA

-Withdrawals will be tax free

If you don’t use the entire 5000$ limit allotted to you for the given tax year the amount of contribution room left may be rolled over to the next year. For younger generations of savers and investors a TFSA might be a better option than a RRSP (Registered Retirement Savings Plan) because you are heavily taxed from RRSP withdrawals.

Unlike an RRSP, TFSA money may be used to make a consumer purchase like a vehicle or real estate based on the stipulation that you would pay the money back within a certain time frame. You can also buy real estate using your RRSP money tax free but that is only for the primary residence in which you would be living in; this money would needs to be paid back at a rate of 15% a year.

The thing I like about the TFSA is that it is indexed to the consumer price index unlike so many pensions out there; thus, contribution limits will fluctuate. In the year 2009 Tax Free Savings Accounts will only save Canadians 5 million dollars, but by the year 2013 it is estimated that Tax Free Savings Accounts will save Canadians somewhere in the neighborhood of 385 Million dollars.

In Canada a lot of people are depending solely on their pension for retirement income. With the use of a TFSA this could help those that are not willing to spend that much time in learning about investing. The number two fear for Canadians behind public speaking is not death but rather the worry that they will not have enough money for retirement; you know what? They should be worried.

Kelly Parks
www.wealthforinvestors.com