MANY newcomers indicate that they make it a top priority to purchase an investment product shortly after arriving in Canada. In fact, an RBC poll revealed that of newcomers living in Canada five years or less, 71% of them own an investment product, with a tax-free savings account (TFSA) being the most popular option at 40%.
Opening up a TFSA is a good option for new Canadians who wish to invest shortly after moving to Canada. It is designed to help you save and invest money and the return you earn is tax free. You can withdraw funds whenever you need, making it a flexible way to save for your future goals. Additionally, you don’t need to have earned an income to be able to contribute to a TFSA. So newcomers can open up a TFSA and start saving right away.
Here’s what you need to know about TFSAs:
As a newcomer, you benefit from the fact that you don’t need earned income to save or invest in a TFSA. There is, however, a maximum amount of money you can deposit into your TFSA each year. All Canadian tax residents who are at least 18 years of age have the same contribution room of up to $5500 a year. You must be the age of majority in your province of residence and have a valid Social Insurance Number to open an account.
You don’t need to have the full $5,500 to get started. Unused contribution room accumulates and can be carried over from year to year. If you withdraw from your TFSA, the full amount of your withdrawals can be put back in future years. Just be careful, as re-contributing in the same calendar year can result in an over-contribution that is subject to penalty tax.
Income earned and TFSA withdrawals are not included as income for tax purposes. This means the TFSA offers a high degree of flexibility and will help to minimize your income tax. The money you deposit to your TFSA can help you achieve your short, medium or long term goals.
A TFSA is a great way to help save for your future. Talking to a financial advisor can help you understand the benefits of a TFSA and the investment options available to you. To see how fast your savings can grow within a TFSA, check out RBC TFSA Calculator (rbcroyalbank.com/tfsa/tfsa-calculator.html). And for more newcomer advice, please visit RBC Newcomers Hub (rbc.com/newcomers).