October 3, 2022
Read time: 5 minutes
Here’s an easy question: What’s your registered retirement savings plan (RRSP) for? Here’s at least 2 uses everyone agrees on: saving for retirement and tax relief.
Here’s a tougher question: What’s your tax-free savings account (TFSA) for? For many people, the answers aren’t so clear. Not because TFSAs aren’t useful, but because TFSAs can serve so many purposes at all stages of your life.
The Canadian government introduced TFSAs in 2009. Since then, they’ve become an important part of many Canadians’ financial plans. Still unsure how you can best use this flexible savings vehicle?
Here are 6 ways it can work for you.
1. You can use a TFSA to finance your retirement
Top up your retirement savings with your TFSA contributions. Have you already reached your RRSP contribution limit? The extra savings will come in handy some day.
Retire early. If you retire early, you may not yet be eligible for government or workplace pensions. And, you may not want to start withdrawing income from your RRSP savings. If so, your TFSA may be the ideal way to bridge the gap. But check with your Sun Life advisor first! Efficiently funding early retirement can be tricky.
Continue to save in retirement. Are you unemployed? Or, is your part-time business not making a profit right now? You may not earn enough to benefit from making an RRSP contribution. But you can still contribute to your TFSA.
Continue to save after age 71. You can’t own an RRSP past the year you turn age 71. You have to convert it to a registered retirement income fund (RRIF) or payout annuity by the end of the year you turn 71. Or, you’ll have to take the RRSP money in cash (and pay tax on it). But you can keep your TFSA open. And you can keep contributing to it as long as you wish.
Use your TFSA as a source of tax-free income. Talk to your advisor about how and when this is a good strategy.
2. You can use a TFSA to save more for your kids’ education
Have you already saved enough to access the maximum government grants for a registered education savings plan (RESP)? Then your TFSA is an ideal place to save more for your kids’ education. You’ll pay no taxes on the growth within the plan. Also, there are no penalties if your children choose not to go to college or university.