5 tips for Tax-Free Savings Accounts
(NC) More and more Canadians are taking advantage of Tax-Free Savings Account (TFSA) investments – a great opportunity to save you hard earned dollars tax-free.
In fact, it's important to note that the 2013 contribution limit is now $5,500, raised from $5,000. Unused TFSA contribution room carries forward indefinitely to future years. The amount of withdrawals made from a TFSA in the year will be added to the contribution room at the beginning of the following year. Canada Revenue Agency will report an individuals' TFSA contribution room for the current tax year on the notice of assessment issued after filing their previous year's tax return.
Here are five quick TFSA tax tips:
• Don't forget that even if you withdraw money from a TFSA, the contribution room for the withdrawn amount does not open up again until the following year. Annual deposits in excess of $5,500 — even if part of that amount is subsequently withdrawn during the same year, and the balance stays at or under $5,500 — will be subject to an over-contribution penalty.
• TFSAs might be an effective means for couples with disparate income levels to split income, with the higher income spouse providing funds to the partner to contribute to his/her own TFSA.
• Speak with a professional accountant, such as a CGA, to determine how TFSAs might fit into a retirement strategy that also involves RRSPs or RRIFs, or an education-funding strategy using RESPs.
• You can transfer funds directly from one of your TFSAs to another of your TFSAs without affecting your contribution room limit. However, if you withdraw funds from one TFSA and contribute those same funds to another TFSA, the transactions will affect your contribution room limit and you may be subject to tax on excess contributions.
• TFSA funds are permitted to be withdrawn at any time, in any amount, and for any reason without affecting taxable income or eligibility for federal means-tested benefits or tax credits.
To learn more about TFSAs, you can contact a professional accountant or reference the Personal Tax Planning Guide published by CGA Ontario at www.cga-ontario.org/Publications.aspx.
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