There are a lot of different ways to save money, but one of the smartest ways to do it is by taking advantage of tax-free savings opportunities.
Tax-free savings accounts (TFSAs) are a great way to grow your money while keeping more of it in your pocket, and there are a few different ways to take advantage of them. We’ll explore a few of the best ways to make the most of your TFSA.
What is a TFSA and how does it work
A TFSA is a special type of savings account that allows you to earn interest on your money tax-free. That means any money you put into your TFSA grows without being taxed, and you don’t have to pay taxes on it when you withdraw it. You can open a TFSA at most banks and credit unions, and you can put any type of investment into it, including savings accounts, GICs, stocks, and mutual funds.
The amount you can contribute to your TFSA changes every year. For 2019, the limit is $6,000. That means you can contribute up to $6,000 to your TFSA this year without paying any taxes on it. If you didn’t open a TFSA last year, you may be able to contribute more this year. That’s because the government adds any unused contribution room from previous years to your limit for the current year.
Who can contribute to a TFSA
Anyone who is a Canadian resident and 18 years or older can open a TFSA. You don’t have to earn an income to contribute, which makes TFSAs a great savings option for people of all income levels.
If you already have a TFSA, you don’t need to do anything to keep contributing. Your contribution limit for the year will be added to your account automatically.
What types of investments are allowed in a TFSA
You can hold a variety of investments in your TFSA, including:
- Savings accounts: You can open a high-interest savings account at most banks and credit unions. The interest you earn on your money is tax-free, which makes this a great option if you’re looking for a safe place to grow your money.
- GICs: GICs are a type of investment that offer guaranteed returns. You can open a GIC at most banks and credit unions, and you can choose how long you want to invest your money for. The longer you invest, the higher the interest rate will be.
- Mutual funds: Mutual funds are a type of investment that allows you to pool your money with other investors and invest in a variety of different securities, like stocks and bonds. This can be a great way to diversify your portfolio and get exposure to a wide range of investments.
- Stocks: You can also buy individual stocks through a TFSA. This can be a great way to grow your money if you’re comfortable with taking on more risk.
- Bonds: Bonds are a type of investment that pays regular interest payments. They’re typically less risky than stocks, but they also tend to offer lower returns.
how to avoid tax on savings account
There are a few different ways to avoid paying taxes on your savings:
- Use a TFSA: As we mentioned, TFSAs are a great way to grow your money tax-free. You can contribute up to $6,000 per year, and you don’t have to pay taxes on the interest you earn.
- Use a high-interest savings account: If you don’t want to open a TFSA, you can still grow your money tax-free by using a high-interest savings account. The interest you earn on your money is taxed at a lower rate than other types of income, so you’ll keep more of your money in your pocket.
- Use a GIC: GICs are a type of investment that offer guaranteed returns. You can choose how long you want to invest your money for, and the longer you invest, the higher the interest rate will be. Plus, the interest you earn on your GIC is tax-free.