What everyone should know about TFSAs

Are you saving for a trip? Maybe you’re renovating your home? How about that new car you’ve had your eye on? A tax-free savings account (TFSA) could be just the thing to jump-start your savings.

Here are some TFSA tips to get you on the path to success and savings:

1) Understand your TFSA contribution room

Your contribution room is made up of three factors: the annual TFSA dollar limit, any unused contribution room from the previous year, and any withdrawals made during the previous year. The annual TFSA dollar limit for 2016 is $5,500.

2) Know your limit

Now that you’re on your way to smart savings, it is important to know about over-contributing to your TFSA. If you deposit more than your contribution room limit, you could be taxed on the excess amount. The best thing you can do is withdraw the extra contribution as soon as possible to reduce further tax implications.

3) Say “I do” to TFSA notification of over-contribution.

If you over-contribute to your TFSA, you will receive notification that will indicate you may be subject to a possible tax. It’s important to respond within 30 days.

Let’s bust a couple of myths about TFSAs:

Myth #1: TFSAs are only applicable to people preparing for retirement.

False. If you’re 18 years old and have a valid social insurance number you can open a TFSA, which can help you pay for your spring break trip, put money away for school, or simply save for your future.

Myth #2: I just started my career; I don’t have enough job stability to open a TFSA.

It doesn’t matter if you’re a co-op student, career beginner, or retiree. Opening a TFSA can help you save at any stage in life.

Myth #3: I don’t think I can contribute enough each year to make a TFSA worthwhile.

You can contribute as little or as much as you want within your TFSA contribution room. And what you don’t contribute this year gets added on to your contribution room for next year.

Whether you’re preparing for a graduation, vacation, or renovation, a TFSA could be the right savings tool to put more money in your pocket.