The Tax Free Savings Account is a government program that allows your investments to grow tax free. There is also no tax owed when you withdraw money from your TFSA. With a new year, we now have another $5,000 in contribution room for our Tax Free Savings Account. So what should you do with your TFSA? Lets look at some options.
Use Your Tax Free Savings Account As An Emergency Fund
If you don’t already have an emergency fund, you should consider starting one right away. A TFSA can be a great way to accomplish this since the money is normally easy to get when needed and your savings will grow tax free.
Save Up For Annual Expenses With Your TFSA
Maybe you have large annual expenses like property tax or insurance? Maybe you just want to start saving towards next Christmas? Contribute to your Tax Free Savings Account each month so that you’re prepared for when these bills are due.
We have set up an Tangerine TFSA in my wife’s name to use as both an emergency fund and to save up for our large annual expenses. If you sign up for a new Tangerine TFSA, you can get $25 for free by entering Orange Key 35090351S1.
Your Tax Free Savings Account Can Shield Your Investments From Taxes
Another option it to put some of you investments into the TFSA. A Tax Free Savings Account works especially well if you want to withdraw a tax free income from income trusts and REITs. Income trusts can have various types of distributions, some of them not very tax efficient.
I set up my TFSA with Questrade and invest in REITs and a couple oil income trusts. You can sign up for a Questrade account and get a free $50 in trades with this Questrade promo code.
What do you use your TFSA for? Do you have different plans for this year’s contribution room?