When the Tax-Free Savings Account (TFSA) was first introduced, nobody was quite sure of the best way to utilize it. Since then, different strategies have emerged depending on where you are in your life. Please read on to discover the best ways to use the TFSA at each stage of your life.
When you are first starting to build your savings at a young age, using the TFSA to save for short-term goals is a good idea. It’s a tax-free way to save for a car or a down payment on a home. Basically, if you think you will need to withdraw funds in the foreseeable future, start with a TFSA. Parents can use TFSAs to their advantage to help get their children off to a good start. You can use your TFSAs to help cover the cost of university education. You can transfer your TFSA to your child’s TFSA when they turn 18, and they can use that to draw from during the school year.
Using a TFSA for high-return investments is a smart idea, as any returns are 100% tax-free within the account and once you withdraw from it. It’s also a great place for retirement savings, as a complement to your RRSP and work pension. You can also use the TFSA in your estate planning. You can dedicate the TFSAs belonging to you, your spouse, and your child and make maximum contributions each year. All these funds grow and are paid out tax-free, when the time comes. Your TFSA funds can be transferred to your spouse’s TFSA without affecting their own allotted contribution room. One other estate planning tip is designating your TFSA assets to help offset tax liabilities, so your beneficiaries receive more of what you planned on leaving them.
As mentioned before, withdrawing from you TFSA is not considered taxable income, so it is a great way to support your retirement. This is especially true if you are in a higher tax bracket, or if you are worried about your eligibility for Old Age Security (OAS). You can also consider putting any excess cash you have into your TFSA, so it can grow tax-free and be available to you whenever you need it.
If you have questions regarding how to best utilize your TFSA, contact a financial advisor at The Beacon Group of Assante Financial Management, Ltd.