The Tax-Free Savings Account (TFSA) has been available to Canadian investors for over a decade. This account provides investors with the opportunity to generate tax-free capital growth and income. Today, I want to look at four TFSA tips to remember in 2021 and beyond.
Avoid a cash-heavy TFSA
Canadian savings rates increased during the pandemic as citizens were forced to cut back significantly on leisure activities.
However, many Canadians have failed to take advantage in their TFSA. Recent studies have shown that many Canadians are content to use their TFSAs as cash accounts. The TFSA is at its best when it is churning out tax-free growth and income.
Be aware of your contribution limit
Just like the RRSP, the TFSA holds a contribution limit that investors need to be aware of. The cumulative contribution room in a TFSA stands at $75,500 as of 2021. However, this is different for Canadians who were age eligible after the 2009 year. If you overcontribute to a TFSA, you will be subject to a penalty.
Consider an automated savings plan
It is hard work to keep up with your portfolio, and sometimes Canadians can neglect to contribute to their registered accounts on a regular basis. Avoid this in your TFSA by setting up an automatic withdrawal, whether it is weekly, bi-weekly, or monthly.
Watch out for foreign dividend stocks
Foreign dividend stocks can be tempting, but TFSA investors need to watch out. Investors will be subject to a withholding tax if they generate dividends from U.S.-based income-yielding equities.
