Open A Tax Free Saving Accounts And Start Building Your Deposit To Buy A Home

There are various programs to help people buy real estate. When it comes to saving up for a deposit opening up a tax free savings account appeals the most to me. The account can be used for other purposes as well making this even more attractive.

Gian-Piero

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Source: Market Watch

In January, you can start saving for a home or anything else - with a tax-free savings account (TFSA), a new financial product. As the name says, investment income earned with money in the account is tax-free and can be withdrawn anytime.

You must be a Canadian resident, 18 years and older, and have a Social Insurance Number to sign up for a TFSA. Each year you can contribute up to $5, 000, in either stocks, GICs, Canada Savings Bonds or various other market funds or savings accounts. The money can be withdrawn anytime, depending on what you invested in, and you don't have to pay tax on it.

Another advantage is that you can carry forward unused contribution room indefinitely and you can replace funds that you withdrew.

For example, if you and your spouse each put $5,000 into a TFSA for each of the next three years, by the end of that time you would have $30,000 plus whatever interest has accrued. You can then withdraw this amount tax-free to use as a downpayment, buy a new ca r or do whatever you need . Later, you can replace that money if you wish .

Unlike RRSPs, contributions to TFSAs are not tax deductible. However, for first-time home buyers, there may be some advantages to using a TFSA to save for a downpayment, rather than using the Home Buyer's Plan that has been in place for several years. Under the Home Buyer's Plan, you can borrow $20,000 from a RRSP interest-free for a downpayment. However, you must repay this amount within 15 years or pay taxes on it. The withdrawal also reduces the amount in your RRSP that could come in handy at retirement.

By using a TFSA to save, you still get the tax-free advantages and you don't have to repay it. However, you may be able to save faster in a RRSP, so discuss which strategy is best for you with your financial advisor. Don't forget that the Home Buyer's Plan applies only to first-time buyers.

For more information about TFSAs, contact your financial institution.
Further information can also be found at The Canadian Revenue Agency 's website http://www.cra-arc.gc.ca/tx/bsnss/tpcs/tfsa-celi/qstns-eng.html