A TFSA can be an effective way to save for the future, even for those who are only able to save a little every year, as your savings will grow more quickly due to the fact that you do not pay any tax on the earnings. Here are some reasons to help you decide whether it would be financially beneficial for you to open a TFSA:
If you are looking for a flexible way to save, a TFSA could be a good option as it allows you to carry forward any unused contributions to subsequent years. In addition, you are able to credit any withdrawals that you have made back into the TFSA to enable you to benefit from the maximum savings potential.
You may already be investing the maximum amount possible into an RRSP. Investing in a TFSA allows you to draw income from it when you retire, without paying tax on the withdrawals.
If you are low income and receive money from the federal government such as the Canada Child Tax Benefit, your TFSA will not affect the amount of benefit that you receive.
You should bear in mind that you have already paid tax on the funds that you invest into your TFSA. Therefore, if you expect that your tax rate will have increased by the time you withdraw your funds, you will have paid fewer taxes in total. Remember that the opposite applies for your investment in a RRSP.
A TFSA offers you the option of keeping investments that would usually be subject to a higher rate of tax sheltered, as you do not pay tax on the earnings.