4 reasons to open a TFSA

1. You’re already contributing the full amount to your RRSP each year

When you retire, you can draw income from your TFSA tax free. This may allow you to delay taking cash from your RRSP – and paying the taxes on those withdrawals.

2. You expect your income tax rate to be higher when you take money out of the TFSA

The money you put into a TFSA has already been taxed. So if your marginal tax rate is higher when you take the money out, you’ll have paid less in taxes. The opposite is true for saving in an RRSPRRSP See Registered Retirement Savings Plan.+ read full definition. A higher tax rateTax rate The rate at which you or a business pays tax on income. Often stated as a percentage, such as 25%.+ read full definition over time will increase your taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition bill when you withdraw your RRSP savings.

3. You need a flexible savings plan

You can carry forward any unused contribution roomContribution room The amount you can put into a savings plan like a Registered Retirement Savings Plan (RRSP). If you do not put the full amount into the plan each year, you will have extra, unused contribution room that you can use in later years. Example: Let’s say you can contribute $12,000 to your RRSP this year,…+ read full definition in your TFSATFSA See Tax-Free Savings Account.+ read full definition to future years. And, if you withdraw your TFSA savings, you can put back the full amount of your withdrawal at a later date and still save the maximum each year.

4. You want to reduce taxes on your investments

You can use the TFSA to shelter investments that would otherwise be taxed at the highest rate. That’s because you don’t pay tax on your TFSA’s earnings. Examples: interest income or foreign dividends. You may want to get some professional advice on how you can use a TFSA as an effective part of your tax planning.

Advantage for lower-income households

If you receive money from government programs based on your income, your TFSA won’t affect the amount you receive. From the Canada Child Tax BenefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition to the Guaranteed Income Supplement (GIS)Guaranteed income supplement (GIS) Extra money from the government for people with low¬ incomes who get Old Age Security. What you get depends on your income or your joint income if you have a spouse or common-law partner. GIS is not taxable.+ read full definition, your credits and benefits stay the same — no matter how much money you take out of your TFSA.

Take action

Use a TFSA to shelter investments that would normally be taxed at the highest rate. You may want to get some professional advice on how you can use a TFSA as an effective part of your tax planning.