October 30, 2014

WE ALL KNOW WHERE WE'RE HEADED:

TFSAs Spur Canada Savings Revolution (CHRIS EDWARDS, 10/24/14, Cato)

There are 27.7 million Canadian adults, so about 47 percent of them own a TFSA, according to the data from Investor Economics. A 2013 survey by a bank found a similar figure of 48 percent. In just five years, TFSAs have become the most popular savings vehicle in Canada, outstripping the Canadian version of 401(k)s. TFSA growth is expected to continue, and the accounts may soon play a central role in virtually every family's financial planning.

The American vehicle most similar to the TFSA is the Roth Individual Retirement Account (IRA). But Roths are far inferior, and thus just 16 percent of U.S. households own them. Indeed, just 38 percent of U.S. households hold any type of IRA, even though these accounts have been around a lot longer than TFSAs.

TFSAs are like supercharged Roth IRAs. Here are some of the key features: 

*Individuals can deposit up to $5,500 after-tax each year. Annual contribution limits accumulate if you do not use them. So if you contribute $2,000 this year, you will be able to put away $9,000 next year ($3,500+$5,500).

*All account earnings and withdrawals are tax-free.

*Withdrawals can be made at any time for any reason with no penalties or taxes. That greatly simplifies the accounts and increases liquidity, both of which encourage added savings.

*There are no income limits and no withdrawal requirements. All Canadian adults can contribute and withdraw at any time during their lives.

*TFSAs can be opened at any bank branch or online. They can hold bank deposits, stocks, bonds, mutual funds, and other types of assets.

*TFSAs are great for all types of saving, including saving to buy a home, a car, or to start a business, and saving for health expenses, unemployment, or retirement.    

Why are we letting Canadians have all the fun?

Posted by at October 30, 2014 6:26 PM
  

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