You may be wondering if the Tax Free Savings Account (TFSA) is right for you. The fact is a TFSA is a terrific account for educators – giving you new tax-free space where you can invest when your RRSP contribution room is limited.
Here is how a flexible TFSA can help you hit the mark in your overall financial plan — whether you want to save for short-term spending needs, or invest for long-term growth.
TFSA success stories: A tale of four educators and their TFSAs
Everyone is looking for financial fulfillment. Here are four members of the education community with very different needs who all found happiness with a TFSA. You will too.
Young and restless: Armand
Armand is an educational worker just starting his career, with limited money to invest. Reluctant to tie up his money in an RRSP just in case he needs it, he opened a TFSA money market fund. And if he needs the money at some point for an emergency – or maybe to buy a new car or pay for a summer dream vacation – he can take it out and pay no penalties.
High flyer: Sam
Sam is a principal who has already maximized his RRSP contributions. He’s looking for another vehicle for long-term investment so he opened a TFSA and invested in growth funds. With many years to retirement, he can weather the ups and downs of the market and he’s thrilled that there will be no tax payable on the growth – ever!
Life’s a beach: Margaret
Margaret is a teacher who can retire in five years, and wants to supplement her pension with extra income. In addition to her RRSP, she’s opened a TFSA and invested in funds that are designed to provide steady, predictable returns. The TFSA will give her a little more “play money” to travel and enjoy her retirement.
Frugal is the word: Connie
Connie retired from teaching 10 years ago. Realizing that her RRSP will expire when she turns 71, she has opened a TFSA to squirrel away her extra savings. Any growth is tax free, there’s no requirement to close it down, and she can draw out the money any time she needs it.
How does your TFSA grow?
It grows tax-free: You don’t pay tax on the growth ever, no matter how much income is earned in your TFSA. It grows as you contribute every year, and you can invest another $5,000 each year. In 10 years, you could contribute $50,000 and build a sizable nest egg.
Give Me Shelter!
Tax shelter, that is. Whatever investments you choose for your TFSA, you can watch these investments grow tax-free. For example, an individual contributing $200 a month to a TFSA for 20 years (assuming an average annual return of 5.5 per cent) will accumulate about $11,045 more in savings than if the investment had been made in a taxable savings vehicle.
Feeling cramped by your RRSP?
The standard financial wisdom is that you should maximize your RRSP. Absolutely. But as a working member of the education community, the government allows you very little space to build your savings. Typically, the annual RRSP contribution room for an educator is approximately $2,500 per year.
TFSA gives you more elbow room!
Give your savings more room to grow in a TFSA. You can now save an extra $5,000 a year (double the typical RRSP contribution). Keep the money for your retirement or any other purpose you want – and pay no tax.
Fast facts about TFSA
1. It is called a “savings” account, but you actually have many investment options beyond low-yield savings accounts.
2. You can open more than one TFSA at different financial institutions.
3. Your TFSA contribution room of $5,000 a year never goes away – even if you make a withdrawal, you can “payback” your account in the next calendar year or later.
4. Unlike other investment income, your TFSA earnings will never disqualify you from receiving federal benefits like Child Tax Benefit or Old Age Security.
It grows as you contribute a lump sum: Whether you contribute or not, your contribution room increases by $5,000. So if you receive a windfall of cash in the future, you can invest the lump sum in your TFSA. It grows without locking you in –it’s flexible. Withdraw the whole amount if you like. Your TFSA can help you save for needs such as down payment on a house, home renovations, children’s education, or dream vacations.
We can show you how to capitalize on growth. For instance, Educators Financial Group offers:
Flexible investment options in our top-rated Educators Financial family of mutual funds.
A strong rate of return on Educator’s Financial Group funds.
Summer Freedom so you can spread your contribution over 10 months and skip the summer payments.
You have everything to gain from a TFSA- the tax-free way to accumulate money.
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Educators Financial Group has been focused exclusively on the education community and their families for the past 35 years, giving them investment advice tailored to their financial needs to help them meet spending, savings or retirement targets.
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