Medical Student and Resident financial wellness centre

Tax Free Savings Accounts (TFSAs)

Starting in 2009, the Tax Free Savings Account (TFSA) gives Canadian taxpayers a brand new way to save up to $5,000 per year without paying tax on investment earnings.

Fast facts:

Implemented as a result of the 2008 Federal Budget as a tax savings vehicle for Canadians 18 years of age and over
Product available January 1, 2009
$5,000 annual contribution limit
Available to all Canadians age of majority* with a Social Insurance Number
Capital gains, and other generated investment income, are not taxed
Flexibility to withdraw funds at any time
Neither income earned nor withdrawals affect federal income benefits or credits
Allows for virtually all RSP investment opportunities

As a medical student or resident, some of the potential short and long term uses and benefits of a TFSA include:

Short-term

House down payment
Travel fund
Car fund
Proceeds of grant/loan
Emergency reserve
Fund parental leave

Short-term savings are generally invested in Money Market Funds or GICs whose interest is taxed at high rates; if invested within a TFSA you will not pay tax.

Long-term

Retirement savings
Education savings
Savings for spouse at home

Eliminates current tax on interest, dividends & capital gains thus accumulates faster than taxed growth.

RRSP or TFSA - which is right for you?

In general, it is advisable to:

Maximize TFSA contribution room if marginal tax rate (MTR) is lower when the funds are deposited compared to when the funds are anticipated to be withdrawn.
Use TFSA savings to fund RRSP contributions once you are in the higher tax bracket.

It's important to remember that the TFSA is an investment account and everyone's financial situation is unique. Contact your MD advisor today to better understand your choices and develop a strategy to meet your needs.

More information on the MD TFSA.

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* In Provinces where age of majority over 18, contribution room will accumulate yet deposits must wait until age of majority