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Business A tax-free savings account can add up to big savingsf you want a tax-free way to invest try the tax savings benefit is large enough toA more difficult decision is whether to a Tax-free Savings Account.motivate you to contribute to a TFSA.invest in a TFSA or an RRSP. As a general IKnown as TFSA,and started in 2009, The Royal Bank has useful informationguideline, if your income is high than the tax Dollarsthey are an excellent way to accumulate savings on TFSA accounts plus a calculator you candeduction of a RRSP contribution, that without sharing investment returns with the &use to illustrate the growth and tax savingsinvestment is preferable. Low incomes will government in the form of taxes.potential. The figures in this article comenot benefit as much from tax deductions so SenseWe will start with the TFSA's rules and from the Royal Bank calculator (RBC.com).a TFSA is a more favourable option.then show how it can be a significant way to We will assume you contribute $5,000 toFor many, it will be advisable to invest in By Peter Watsonaccumulate large sums of money over time.a regular account on the first day of the yearboth a TFSA and an RRSP. That decision is If you are 18 years or older, you can con-for 30 years and that you earn four per centbetter made with the help of your advisor.tribute a maximum of $5,000 annually. Any annually. We will also assume you earnFebruary is usually RRSP contribution income to qualify to contribute to a TFSA unused contribution room can be carried $50,000 per year and that figure is needed tomonth because the deadline for 2010 contri-and there is no time limit when the funds forward indefinitely. Be careful, as over con-determine your tax rate and therefore calcu-bution is March 1. So this is an excellent have to be taken out of the plan.tributions are subject to a monthly tax pen-late tax savings.time to co-ordinate savings and tax-shelter-The main advantage of a TFSA is the tax alty of one per cent.After 30 years, a taxable investment woulding options between an RRSP and a TFSA.savings. They are extremely attractive and Investments held in a TFSA grow tax-free be worth $234,912. If you used a TFSA youThe TFSA is still a new option, but there have great flexibility to be used for short- and there is no tax paid when money is with-would have accumulated $291,642 as a resultis a significant tax savings that will acceler-and long-term savings objectives.drawn. An attractive feature for retired indi-of tax savings of $56,730.ate the growth in your investments.We Some might dismiss them because they viduals is that the earnings and withdrawals The tax savings benefit increases withstrongly advise you think seriously about only allow for a relatively small annual con-are not used to income test individuals for higher investment returns and higher per-contributing to a TFSA.tribution of $5,000. You might want to re-government benefits and tax credits.sonal income tax rates. Submitted by Peter Watson, MBA, CFP, think that. Over time,the amount invested If you withdraw funds, you may re-invest Effectively,the more money the govern-R.F.P., CIM,FCSI. In 1991,Peter founded Peter and the tax savings can be significant.those funds in future years in addition to ment normally takes from you the moreWatson Investments in Oakville. Peter can be We will compare a TFSA with a normal your annual contribution limit of $5,000.advantageous it is for you to shelter thatreached at 905-842-2100 or visit the website at taxable account. This way you can decide if You do not require a specific earned within a TFSA.www.peterwatsoninvestments.com.19 Thursday, February 10, 2011 OAKVILLE BEAVER www.insideHALTON.com