Less than one-third of Canadian households take advantage of a TFSA
Yet, only 30% of Canadian households are taking advantage of this tax-sheltered savings tool.
According to Environics Analytics 2015 WealthScapes report, Canadians are not making tax-free savings a priority.
The study found that:
- Thirty per cent of households have a registered TFSA;
- The average savings in a TFSA is $32,504;
- Canadians in Manitoba are taking the most advantage of this tool, with 36% of households holding an account;
- While less than 20% of hosueholds in PEI, New Brunswick and Nova Scotia are sheltering their savings.
With the economy slipping into a technical recession, Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, wonders why more Canadians aren’t using a TFSA.
“How much you have in savings is the true litmus test of financial health, and savings vehicles like the TFSA have the potential to help you weather any financial storm,” says Schwartz.
“The beauty of a TFSA is that it allows you to save for any financial goal. Whether it’s a car, a home or a rainy day emergency, you are not taxed on your savings, and you won’t be penalized for making a withdrawal.”
When it comes to savings, a TFSA is an excellent tool to help Canadians secure a healthy financial future. However, the rules around Tax Free Savings Accounts can be confusing and may be preventing individuals and families from using this new financial tool.
To that end, Schwartz and the team at Consolidated Credit offer a few ‘need to know’ facts about TFSAs that may encourage you to start saving more:
- Contribution limits. Starting in 2015, Canadians 18 years and older can contribute up to $10,000 per year.
- You don’t need an income. You don’t need to earn an income or file income taxes to contribute to a TFSA. If you come into a financial windfall, or receive a monetary gift, if can be contributed to your savings.
- You don’t pay tax on the interest. TFSAs offer Canadians the opportunity to earn tax-free investment income. This means you don’t pay tax on any interest earned in your account.
- Take out what you want, when you want. You can withdraw from your TFSA at any time and for any reason. Whether it is for your retirement, to make a major purchase or to make ends-meet during difficult financial times, TFSA withdrawals are tax-free.
- You can re-contribute. If you needed to tap into your savings this year, but have your finances back on track in 2016, you are able to contribute the 2016 maximum, plus re-contribute what you borrowed this year.
- They encourage savings. If you set up automated savings from each paycheque you will make the contributions invisible and will quickly start to see the benefits of a TFSA.
- Every little bit helps. You don’t have to contribute the maximum to get the most out of a TFSA. Every penny that you save has the potential to grow in a TFSA and provide a financial cushion. Save what you can and make the most of your financial future.
If bill payments and household expenses are making it impossible to save for the future, you may be in financial distress. Give us a call, we can help! Call today to speak to a trained credit counsellor and find out how you can get your budget under control. You can also try our Free Debt Analysis online and a counsellor will reach out to you.