As the average age for seniors continues to increase, individuals and families are concerned with the rising costs of long term health care and of nursing homes. Approximately 2/3 of all adults will require long term health care assistance at some point during their lifetime, causing this expense to be a concern for most Canadian families. But, with the ability to save into a TFSA beginning in 2009, many families are optimistic about its ability to lower potential nursing home costs for themselves and their family members.
The most obvious benefit of a tax free savings account is that it offers the ability to provide current income that is tax free along with the lack of capital gains taxes or dividend taxes. As there is not a current annual income requirement associated with being able to utilize this investment, it is open to any Canadian over the age of 19.
A large percentage of Canadian nursing homes calculate the maximum daily living expense based upon the resident’s prior year’s taxable income. So, the larger the annual taxable income, the higher the eligible daily rate charged to the individual. In addition to the resident’s annual taxable income, their old age pension plan and any applicable old age supplement income are factored into determining what the minimum rate per day is. While the minimum amount cannot be changed by the individual, the maximum amount can be influenced.
The TFSA allows for the individual’s taxable income to be reduced as the money withdrawn from these accounts is non-taxable. If enough of an individual’s income is derived from a TFSA, the total maximum amount charged by a nursing home can also be reduced.
Another benefit of a TFSA in relationship to nursing home costs relates to annual income received. Because the income received from tax free savings accounts is tax free to the recipient, the total income received by the individual or the household does not change, even though their taxable income has been reduced. So, the same quality nursing home care and household income or lifestyle will remain unchanged.
There are not current income requirements for an individual to be eligible for saving into a tax free savings account. What this means is that money contributed into accounts can be derived from either current income or other assets. Aging adults can begin to transition funds from taxable accounts into tax free savings accounts up to the annual maximum limit. And, as the annual contribution limit continues to increase annually, the amount eligible to be transferred will also increase giving an even greater opportunity to take advantage of these financial benefits.
In addition to being able to transfer current assets into the account, the tax free savings accounts can be replenished. So, if the account balance is drawn down, it can be refilled again and again. This flexibility is not available in most other investment accounts.
Overall, there are a tremendous amount of benefits to seniors in nursing homes or who may require this type of assistance by utilizing the new tax free savings accounts.