Christmas has just gotten a lot easier in Canada, thanks to the Santas in the federal government.
Why would you give anything less than a Tax-Free Savings Account (TFSA) to your loved ones? It is probably the most important economic gift you can give to the adults in your family, allowing them to accumulate, grow and preserve future wealth completely tax free. And, as of Jan. 1, you can contribute to your TFSA an additional $500, taking the annual maximum to $5,500.
Because unused contribution room to TFSAs accumulates and as TFSAs were introduced in 2009, if you have not contributed to a TFSA, you can now contribute $20,000. With the new contribution level for 2013, total possible TFSA contribution room will amount to $25,500 as of Jan. 1.
But let’s assume you start your TFSA in calendar 2013. Just think: Tax freedom via a TFSA could be yours if you put $458.33 every month into your TFSA. That’s about $230 from every paycheque. But even if you can’t afford to contribute the maximum, opening a TFSA account is the first step. If you are a Canadian resident who is at least 18 years of age, do that before yearend and be ready to contribute in 2013.
According to the federal Department of Finance, 8.2 million Canadians have done just that, with roughly 25% of them contributing the maximum amount in 2011. While that’s a great start, that leaves 75% not making the maximum contribution. Still others are missing out entirely. This points to a need for financial planning and some stealth budgeting to take full advantage of the cornerstone of every family’s wealth. Your financial advisors can help and now is a good time to contact them — before you spend too much on gifts that will depreciate rather than grow in value.
Consider gifting your adult children up to half their TFSAs. Hopefully, they will match it with tax-efficient investment decisions. It’s a opportunity to teach tax literacy at its finest. A good question to consider as the family gathers around this holiday season is: What would you have to give up to secure your tax-free future income? It’s a good discussion and an easy one, because it can focus the economic power of the family and bring even young adults into a financial discussion.
It’s Your Money. Your Life. Make sure your family is on the “TFSA for Tax Freedom Plan.” The TFSA should be a cornerstone of every family’s wealth-management plan. If you miss out on making that $5,500 contribution in 2013, you could compromise a tax-free pension in your future.
Evelyn Jacks is the president of Knowledge Bureau, a national designated educational institute focused on excellence in financial education for financial advisors and their clients. She is also a respected author on tax and has just released her 49th and 50th books, Jacks on Tax and Essential Tax Facts. Also, consider taking a certificate course on tax-efficient retirement income planning and Real Wealth Management.