TFSA Good For Spousal Plan

Tax-free savings accounts. Beginning in 2009, Canadian-resident individuals who are 18 years of age or older will be permitted to contribute a maximum of $5,000 (indexed to inflation) per year to their “tax free savings account” (“TFSA”). To the extent that an individual does not fully utilize his or her contribution room in any particular year, the unused contribution will be carried forward and applied against contributions made in future years. Contributions to a TFSA will not be tax deductible but any income or capital gains realized on the investments held in a TFSA will be exempt from tax and any withdrawals from the TFSA will be tax-free. In order to ensure that there is no loss in an individual’s cumulative contribution room for his or her TFSA, the individual will be permitted to re-contribute amounts previously withdrawn from the TFSA without such re-contribution reducing the individual’s otherwise available annual contribution limits. An individual will also be permitted to make contributions to a TFSA established by a spouse or common-law partner, provided the spouse or common-law partner has contribution room available. Subject to some exceptions, the investments permitted to be held in an individual’s TFSA will be the same as those investments currently permitted for registered retirement savings plans.

What is interesting here is that if both spouses contribute $5,000 per year it can add up and prove to be an excelent tax reduction strategy for retirement time.

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