The Tax-Free Savings Account, or TFSA, is here, and it's possibly the most significant change to how Canadians will save since the arrival of the RRSP half a century ago.

Like an RRSP, the TFSA shelters your investments from tax. However, with its more flexible features, the TFSA can help you achieve a variety of short- and long-term goals, from supplementing your retirement savings to taking that dream vacation.

The main benefit of the TFSA is the tax savings you can realize if you hold investments outside an RRSP. With non-registered investments, the taxes you pay on your investment income chip away at your earnings. Sheltering some of these investments in a TFSA will eliminate the tax you would otherwise pay.

This example compares investing under a TFSA versus keeping funds in a regular, non-registered account. Here we use a one-time, $5,000 investment in a 5% GIC assuming a 40% taxation rate.

TFSA vs NON-REGISTERED ACCOUNT*

*Example shown for illustrative purposes only.

In this comparison, a single $5,000 TFSA contribution builds 47% more savings than the same amount held in a regular account after 20 years. If a $5,000 contribution was made annually instead, the TFSA would deliver over $35,000 more in savings over that time.

Regardless of the mix of investments you hold and the kinds of investment income you receive, choosing to shelter a portion of your non-registered investments in a TFSA will leave more money in your pocket each year, creating a larger portfolio over time. Although you won't receive a tax deduction for your TFSA contribution, time and compounding still work in your favour.

Here’s how the TFSA works:

• The TFSA is available to Canadians 18 years of age and older.
• Investment income earned in the account is not taxed.
• Much like an RRSP, a range of investment vehicles, including savings accounts, guaranteed investment certificates and mutual funds* can be held in a TFSA.
• Up to $5,000 can be contributed in 2009 and each year thereafter.
• Unused contribution room can be carried forward indefinitely.
• You can withdraw funds from the TFSA at any time for any purpose although transfers or withdrawals may be restricted based on selected investment terms.
• While contributions are not tax-deductible, tax-free withdrawals can be made anytime.
• Any withdrawals from the plan add to future contribution room, letting you 'replace' whatever you take out.
• Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits, such as the Guaranteed Income Supplement and the Canada Child Tax Benefit.
• Contributions to a spouse’s TFSA are allowed and TFSA assets can be transferred to a spouse upon death.

To explore how ACU’s Tax-Free Savings Account can benefit you, please call for an appointment with your account manager.

*Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and cash balances are not covered by Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.