i noticed that i have what i consider a lot of money in my TFSA contribution room, but i have no idea what a tax free savings account even is, or what is meant by contribution room, or how i’ve accumulated that money. am i supposed to do anything with it? is there anything i should know? for context i’m a student in my mid-ish 20s
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This is a very important thing to know about and you will literally change your future life if you use it starting in your 20s. However /r/PersonalFinanceCanada is a much better subreddit to learn about it, please post there because your post here will probably be banned for being too specific a question.
You should use it like a long-term savings account. Move all the money you don’t intend to use in the next couple years into it. Like canukcowgirl said you can “buy stocks” but that could be as simple as just one “set it and forget it” diverse mutual fund from your bank (which is like a package of stocks in hundreds of companies, already picked for you so you don’t need to know about buying stocks).
Normally if you make money on the stock market you need to pay tax on the earnings. In a TFSA you don’t pay tax on the earnings, that’s the whole point of a TFSA.
To give you a sense of what we’re talking about here: If you put in 10K when you’re 25, use that to buy a mutual fund that makes 7%, and don’t touch it until you’re 65, it will be worth $163,000. And that’s a tax-free take-home $163,000, because you bought that mutual fund with money that’s *inside your TFSA*. Due to how compounding growth works, the biggest factor is how long your money has to grow. 100K of that 163K comes in just the last couple years. So do your future self a favour and start ASAP, you have a huge opportunity here being so young.
Please check out PersonalFinanceCanada, or even just go to your bank sometime and say “hey I’d like to talk about setting up my TFSA”. I’m not exaggerating to say there is life-changing amounts of money for next to 0 effort available here.
This is a very important thing to know about and you will literally change your future life if you use it starting in your 20s. However /r/PersonalFinanceCanada is a much better subreddit to learn about it, please post there because your post here will probably be banned for being too specific a question.
You should use it like a long-term savings account. Move all the money you don’t intend to use in the next couple years into it. Like canukcowgirl said you can “buy stocks” but that could be as simple as just one “set it and forget it” diverse mutual fund from your bank (which is like a package of stocks in hundreds of companies, already picked for you so you don’t need to know about buying stocks).
Normally if you make money on the stock market you need to pay tax on the earnings. In a TFSA you don’t pay tax on the earnings, that’s the whole point of a TFSA.
To give you a sense of what we’re talking about here: If you put in 10K when you’re 25, use that to buy a mutual fund that makes 7%, and don’t touch it until you’re 65, it will be worth $163,000. And that’s a tax-free take-home $163,000, because you bought that mutual fund with money that’s *inside your TFSA*. Due to how compounding growth works, the biggest factor is how long your money has to grow. 100K of that 163K comes in just the last couple years. So do your future self a favour and start ASAP, you have a huge opportunity here being so young.
Please check out PersonalFinanceCanada, or even just go to your bank sometime and say “hey I’d like to talk about setting up my TFSA”. I’m not exaggerating to say there is life-changing amounts of money for next to 0 effort available here.
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