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Is a Tax-Free Savings Account right for you?

(NC) Tax-Free Savings Accounts (TFSAs) and Registered Savings Plans (RSPs) are both great ways to save, but personal finance experts say choosing the right investment really depends on your individual goals.

“If you're saving for retirement, RSPs are a great option. But for shorter-term savings, for example a car, vacation or a down payment on a home, TFSAs are the way to go,” says Wade Stayzer, Vice President of Retail and Investment Services at Meridian, Ontario's largest credit union. “Also, any returns that grow inside a TFSA are not subject to taxes when they are withdrawn.”

If you've maxed out your RSP contributions for the year, Stayzer says that a TFSA can also be a great complement to your retirement savings, tax-free. And when you are retired, TFSAs are especially beneficial because neither the income earned within a TFSA, nor any withdrawals made from a TFSA, will impact a senior's eligibility for federal benefits including Old Age Security and the Guaranteed Income Supplement. Plus, there is no age cut-off for contributions, whereas the maximum age limit for RSP contributions is 71.

To make saving easier with a TFSA, Meridian offers the following tips:

Set up a pre-authorized contribution: While the deadline for contributing to a TFSA is December 31st of each year, you might not be able to make your maximum contribution in one lump sum. Creating a pre-authorized contribution to your TFSA allows you to invest regularly with smaller installments on a weekly or monthly basis. You can also earn tax sheltered returns and customize a convenient and flexible plan that fits your budget and savings goals.

Seek expert advice: Financial institutions like Meridian offer a wide variety of investment options for your TFSA. Work with a trusted financial advisor to ensure that you are maximizing your TFSA growth potential, while ensuring you are selecting the investment option that is right for your needs and goals.

Save tax free: You can contribute up to $5,500 per year to your TFSA. Your investments grow tax free, meaning that when you take money out of your account you won't have to pay taxes on the earnings.

To learn more about TFSAs and RSPs, visit meridiancu.ca.

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