Canadians Saving Billions with Tax-Free Accounts
October 27, 2014
In 2009, Canada introduced Tax-Free Savings Accounts (TFSAs), and the results have been overwhelming:
- In June 2009, 3.8 million Canadians had a TFSA; today, 13 million Canadians have a TFSA.
- And the amount of assets in the accounts has seen comparable growth. There were $13.4 billion in TFSA funds in 2009, $73.9 billion in 2012 and $108.9 billion in December 2013.
- As of June 2014, there are $131.5 billion in TFSA assets.
Of 27.7 million adult Canadians, 47 percent have a TFSA, says Chris Edwards of the Cato Institute. Edwards explains how the accounts work and why they are so popular:
- Canadians can deposit a maximum of $5,500 into their accounts each year, after taxes. However, those annual limits accumulate if an individual does not max out his contribution; if someone only deposits $2,000 in his account this year, he can deposit $9,000 next year.
- Earnings are tax-free, as are withdrawals, and withdrawals can be made at any time, for any reason.
- Everyone has access to the accounts; there are no income limits.
- The accounts can be opened at any bank branch or online.
Edwards encourages the United States to adopt a TFSA model. The accounts are simple and easy to understand and, if Canada's experience is any example, would greatly increase savings rates in the United States.
Source: Chris Edwards, "TFSAs Spur Canada Savings Revolution," Cato Institute, October 21, 2014.
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