Money Geeks Read This

Veronica...I'm looking at you!!

In January of next year (that's 2009 bozo) the federal government is introducing a TAX FREE SAVINGS ACCOUNT available to Canadians.

How the Tax-Free Savings Account Will Work:The Official Response (with my two cents in orange!)

Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward. (If you only contribute $1000, you will have $5000 + $4000 room next year, plus the inflation protecting $500. Just like RRSPs...more or less)

Contributions will not be deductible. (If you have an RRSP you can claim the contribution on your taxes and get a "credit" towards the amount of tax in total you pay on your income. This effectively reduces the amount of tax you have to pay and means you get a nice fat refund - in most cases. The new account doesn't work like that.)

Capital gains and other investment income earned in a TFSA will not be taxed. (The interest you earn within a regular savings account, is taxable. If you have a non-registered Mutual Fund, or Segregated Fund, you pay taxes on Capital Gains.)

Withdrawals will be tax-free. (This is NOT the case with RRSPs...you pay tax on any amount you withdrawal at your tax rate. Which is why they are good for when you retire and have no other income, so you tax rate will probably be lower than it is now. Unless you're one of those wealthy seniors!)

Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits. (I'm assuming they're talking employment insurance, or GST rebates, etc. but I'm not sure.)

Withdrawals will create contribution room for future savings. (example, if you contribute your maximum for the year, then withdrawal some money, you can put that same amount back in without penalties. Example with numbers: you contribute $5000. Then you withdrawal $3000. You can put money back in up to $3000 without penalties.)

Contributions to a spouse's or common-law partner's TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death. (like a spousal RRSP, for those of you who know what that is)

Qualified investments include all arm's-length Registered Retirement Savings Plan (RRSP) qualified investments. (anything that qualifies to be an RRSP, qualifies to be a TFSA...that means GICs, Seg Funds, Mutual Funds, etc. - I'm assuming)

The $5,000 annual contribution limit will be indexed to inflation in $500 increments. (in other words, the maximum you can contribute will go UP by $500 each year! Not that most of us can afford even $5000 per year, but just in case...)

(Source: 2008 Budget)

As far as I can tell from my limited Google search, most of the banks are running with this, and ING is even going to let you start an account now and essentially make sure you earn enough interest to cover the taxes until January, when the account will automatically be transferred to tax-free status. I know that Primerica is doing something with this as well, but since I am NOT going to be continuing with them next year I have no problem telling you to SHOP AROUND!

And I still recommend you look into getting an RRSP. The tax-free savings account doesn't replace RRSPs, it's just good in a different way. It has it's advantages as much as an RRSP does.

If you ever have investment questions, you can always ask me and I will try my best to answer them...as an individual (not as a Primerica rep, not anymore). I learned some things in my time with them that will come in handy. And if you want to sit down with me and talk Primerica stuff, I'm still available until my license expires in February. Just pick up the phone, and call me!!

P.S. I got the above "official" information from a CTV online news story. Here's the link to the full story. And read the comments below...there's lots of good info there!