Q: I have more than $80,000 in my Registered Retirement Savings Plan (RRSPs). Can I transfer a portion of my RRSPs to the new Tax-Free Savings Account (TFSA)? What happens if I decide to withdraw this amount from the TFSA?
A: Last week’s federal budget has given the average individual taxpayer an opportunity to keep more money in their bank account.
Finance Minister Jim Flaherty has introduced the new Tax-Free Savings Account (TFSA). Starting in 2009, Canadians over the age of 18 years can take advantage of this registered savings account to save for retirement or the like.
The TFSA complements other existing individual registered savings plans such as RRSPs, RPPs, RESPs and RDSPs.
Taxpayers should not confuse RRSPs and TFSAs. Individuals receive a tax deduction for contributions to RRSPs and are taxed on withdrawals.
On the other hand, contributions to a TFSA will not entitle the individual to a tax deduction nor will he/she be taxed on the withdrawals. Individuals can now have a savings account that earns income and not pay half the earnings to Revenue Canada.
The TFSA offer individuals the flexibility: To save for retirement; save on tax on the investment income; withdraw funds for use such as purchasing a car, renovations, etc.; and more. The TFSA will benefit many taxpayers.