The Tax-Free Savings Account annual contribution limit for 2020 is $6,000. The total accumulation limit allowed is therefore $69,500.

Contribution room is cumulative and will be carried forward indefinitely. Unlike the RRSP system, any amount withdrawn from your TFSA in a particular year will be automatically added to your TFSA contribution room for the following year, allowing you to withdraw TFSA funds to re-contribute an equivalent amount in a future year. As with RRSPs, any excess contributions beyond your limit will be taxed at 1% per month.

Any Canadian resident who is at least 18 years old will be allowed to open a TFSA. The only requirement is that you have a Social Insurance Number when the account is opened.

An RRSP is primarily intended for retirement. The TFSA is like an RRSP for everything else in your life. Both plans offer tax advantages, but they have key differences:

• Contributions to an RRSP are deductible and reduce your income for tax purposes. Contributions to a TFSA will not be tax-deductible; however, the income generated will not be taxed.
• Withdrawals from an RRSP are added to your income and taxed at your current rate; your TFSA withdrawals and growth within your account will be tax-free.

Unlike RRSPs, but similar to RESPs, contributions to a TFSA are meant to come from after-tax funds and therefore will not be tax deductible from income. The big advantage is that any income and gains on investments held within a TFSA won't be taxed while inside the TFSA or upon withdrawal.

While every person's circumstances are unique, a general rule of thumb is if your tax rate is going to be lower when you withdraw the money than when you put it in, contribute to an RRSP. If your tax rate is going to be higher upon withdrawal, use the TFSA. It's best to talk to your financial advisor to discuss your personal circumstances and plan an investment strategy to meet your individual needs.

The TFSA will provide seniors with a tax-free savings vehicle to meet ongoing savings needs, something they have only limited access to once they reach age 71 and are required to begin drawing down their registered retirement savings. Any investment earnings within a TFSA will not affect Old Age Security benefits.

While the TFSA will have benefits for people of all ages and income levels, there are some distinct situations where the TFSA will be very useful:

• Young people with a long time frame to compound investment returns
• Low-income people who save little taxes from RRSP contributions
• People who have run out of RRSP contribution room
• Seniors facing clawbacks of social benefits such as Old Age Security or the Guaranteed Income Supplement, or who must collapse their RRSPs at age 71

A TFSA plan can be transferred tax-free when you die to your spouse or common-law partner as the "successor account holder". The assets of the plan itself can be transferred regardless of whether the survivor has available contribution room and without reducing the survivor's contribution room.

Yes, the Canada Revenue Agency will track TFSA contribution room when you file your annual income tax return, just as they currently do for your RRSP.

In general, a TFSA will be permitted to hold the same investments as an RRSP. This will include a broad range of investments such as mutual funds, securities, government and corporate bonds, term deposits and, in certain cases, shares of small business corporations.

Since the income earned inside a TFSA along with TFSA withdrawals are non-taxable, you won't be able to write off any interest expense on funds borrowed for the purpose of investing in a TFSA. TFSA assets can be used as collateral, which may help investors obtain secured credit at more favourable rates.

If you become a non-resident, you can still hold your TFSA and continue to benefit from the tax exemption on investment income and withdrawals. However, no contributions will be permitted nor will TFSA contribution room continue to accrue.

Talk to your financial advisor at BlueShore Financial. Your advisor can look at your entire portfolio, take into consideration your personal situation and goals, and recommend specific strategies. Call 604.982.8000 in the Lower Mainland or toll-free at 1.888.713.6728 for more information.