A man uses his mobile phone outside an Australia and New Zealand bank branch in central Sydney August 16, 2013.
A man uses his mobile phone outside an Australia and New Zealand bank branch in central Sydney August 16, 2013. REUTERS/Daniel Munoz

Canada is offering more economic freedom to its citizens than the United States and showing the path for other countries to use tax reforms in encouraging a savings revolution. The case in point is, Canada's unique tax free savings vehicle, Tax-Free Savings Accounts, that is making news and earning accolades as a catalyst simplifying taxation in savings, encouraging families to save more and accelarating economic growth, reported Western Free Press.

According to Toronto-based, Investor Economics, the popularity of TFSAs is skyrocketing. In the past one year, TFSA assets showed an upsurge of 34 percent and the number of account holders shot up by 16 percent. As of June, this year, there are 13 million Canadians holding $132 billion in TFSA assets.

Investor Economics points out that given the fact that U.S. population is 10 times that of Canada, it will be easy for the U.S. to produce 130 million Americans to pour in $1.3 trillion into a similar personal savings vehicle. The TFSA was launched in 2009. Among the 27.7 million Canadian adults, it is estimated that 47 percent adults own a TFSA, according to the data by Investor Economics. In the last five years, TFSA became the most popular savings vehicle in Canada, outstripping the erstwhile Canadian version of 401(k). Analysts are expecting that the drastic growth of TFSA will only continue.

Savings Revolution

But the pradox is that, as fars as the U.S. is concerned, a vehicle that closely resembles the TFSA is the Roth Individual Retirement Account. But Roths cover only 16 percent of U.S. households. According to Chris Edwards, Director Tax Policy at Cato Institute, "in the U.S just 38 percent of households hold any type of IRA, though these accounts have been around for many years before the TFSA appeared."

The key features of TFSAs are the following. The major pull about TFSA is its flexibility in contributing up to $5,500 after-tax each year. The annual deposit limits are adjustable in subsequent years, in case the full limit has not been utilised in a particular year. The account earnings and withdrawals are also completely tax-free. TFSA also offers the liberty to withdraw any time for any reason with no penalties or taxes. The impact of TFSA has been that it simplified the accounts and raised liquidity and amassed savings, reports Moral Liberal News.

Life Made Easy

TFSA's impose no income limits and have easy withdrawal requirements. All Canadian adults are entitled to contribute to TFSA and they can withdraw any time during their lives. Also, the TFSAs can be opened at any bank or can be opened online. It can be held in the form of bank deposits, stocks, bonds and other asset forms. The Canadians seem to love TFSAs as it is making life easy when it comes to buying a home, car or starting a business or managing health expenses, including retirement.