On spring of 2008, Canadian financial minister tabled the 2008 budget including $ 5000 tax free saving plan in order to assist Canadians aged 18 and older to save for their retirement. A Tax?Free Savings Account (TFSA) is a flexible investment account that allows you to earn investment income without paying taxes and gives you access to your money whenever you want it. Starting January 2, 2009, you can open an account with any financial institution, including bank, trust, mutual fund company etc. and any qualified investments include all arm's-length registered retirement savings plan (RRSP) qualified investments.



The plan also allows an investor to withdraw funds from the TFSA at any time and for any purpose. Any amount withdrawn amount from the plan can be put back at a later date without reducing contribution room. Investor who puts less than $5,000 into a TFSA in a given year, the unused room can be carried forward to future years and contributions to TFSA is not tax deductible. Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits. The $5,000 annual contribution limit will be indexed to inflation in $500 increments.

You can use the below formula to calculate your final returns, assuming that interest or investment return compound only once a year

FV = $5000 (1 + r)Y

FV is the final return of your investment

r is rate of return

Y is number of year that the initial investment allow to compound

If you contribute less than 5000 dollars you can the 5000 with any number of your choice

Beside investing in the saving account, term deposit and other guaranteed products that offer very low return. Investor may also invest the TFSA into other non guaranteed products, such as stocks, bonds, mutual funds,etc segregate funds offered by insurance company that have 75 guaranteed on the initial investment or death.

Be sure to talk to your financial adviser in order to find the suitable and best investment for hard earned saving.

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