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Old November 2nd, 2014, 08:26 AM   #1
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A Great Canadian Idea Eh.

Canadian Savings Plan Could Aid U.S.
Canada introduced Tax-Free Savings Accounts (TFSAs) in 2009, and they have proved so successful that the United States should adopt them as well, according to a report from the Cato Institute.
In June 2009, 3.8 million TFSAs held $13.4 billion. Three years later, 10 million accounts held $73 billion. By the end of last year there were 12.3 million accounts with $109 billion in assets, and in June of this year 13 million accounts held more than $131 billion.
About 47 percent of Canada's 27.7 million adults now own a TFSA.
"We think that such accounts would be a fantastic policy reform for America," the authors of the Cato report state. "They would simplify the taxation of savings, encourage families to save more, and spur stronger economic growth."
In Canada, individuals with a TFSA can deposit up to $5,500 each year. The limits accumulate, so if Canadians deposit just $3,500 one year, they can deposit $7,500 the following year.
All account earnings and withdrawals are tax free, and withdrawals can be made at any time with no penalties.
There are no income limits and no withdrawal requirements. And TFSAs can be opened at any bank branch or online. They can hold bank deposits, bonds, mutual funds, stocks, and other types of assets.
The U.S. savings plan most similar to TFSAs is the Roth Individual Retirement Account, but "Roths are far inferior," the authors assert, and just 16 percent of American households own them.
With a U.S. population about 10 times that of Canada, our northern neighbor's success with TFSAs would translate to 130 million Americans pouring $1.3 trillion into new savings accounts.
The authors conclude: "Everyone agrees that Americans don't save enough, so why don't we kick-start a homegrown savings revolution with a U.S. version of TFSAs?"
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Old November 2nd, 2014, 08:50 AM   #2
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Not a big deal but a good deal. I got mine maxed out with my highest paying investments. Neither capital gains or investment income is taxed for any securities (or cash) in a Tax Free Savings Account.

The limit was $5000.00/y but was upped to $5500.00 for 2014 and onwards. And it is cumulative since inception in 2009. Amounts allowed to be deposited are carried forward. If you had contributed the max previous years, didn't contribute this year, you could contribute $11.000.00 in 2015.
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Old November 2nd, 2014, 08:55 AM   #3
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how's that different from an ira? or 401k?
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Old November 2nd, 2014, 09:00 AM   #4
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Originally Posted by webguy4 View Post
how's that different from an ira? or 401k?
I'm not sure how your IRAs and 401Ks word, but these TSFAs are in addition to our Registered Retirement Savings Plan. In these RRSPs, you are allowed to contribute a certain percentage of your salary, up to an annual limit and that contribution is tax deductible. But any withdrawl from it is taxed as income. Whether that money is cash put into the account, investment income or capital gains. The idea being you deposit when you are making a higher salary and are taxed at a higher rate so you save more than you pay when you withdraw it in retirement with zero or little income when you tax rate is lower.
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Old November 2nd, 2014, 09:20 AM   #5
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ira's work like that , with a 10% penalty for an early withdrawal in addition to the tax on the income.
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Old November 3rd, 2014, 05:55 AM   #6
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Originally Posted by webguy4 View Post
ira's work like that , with a 10% penalty for an early withdrawal in addition to the tax on the income.
I would add, IRA's are for the individual. 401k are essentially the same but connected to your employer.

And if you work for a company that participates, they may add matching funds, up to a certain percentage, to your 401k.
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