Here’s an easy question: What’s your registered retirement savings plan (RRSP) for? You might say the same two things everyone else uses theirs for: saving for retirement and tax relief.

Here’s a tougher question: What’s your tax-free savings account (TFSA) for? For many people, that’s not a straightforward question – not because TFSAs aren’t useful, but because you can use a TFSA in so many different ways, and at different stages of your life.

Since TFSAs were introduced in 2009, they’ve become an important part of many Canadians’ financial plans. But it’s not always obvious how to use a TFSA most effectively.

Here are some ways you can put this terrifically flexible account to work.

1. You can use a TFSA to save more for your kids’ education

Before post-secondary school. 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 and there will be no penalties if your children choose not to go to college or university.

During the post-secondary years. Have you already contributed the maximum to your own TFSA? If your children are at least 18 or older, you can give them money to open TFSAs in their own names. (A word of caution: A TFSA in your child’s name means the child isn’t legally obliged to use the money the way you intend.)

2. You can use a TFSA to help your kid(s) save for other goals

When school’s finished, you can continue to give your children money to contribute to their TFSAs. You can do this with an understanding that they’ll use the money for a specific goal, such as a down payment for a home or wedding costs. (But again, the child has no legal obligation to use the money the way you intend.)

3. You can use a TFSA to finance your retirement

Top up your retirement savings with TFSA contributions, if you’ve 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 to receive government or workplace pensions. And, you may not want to start withdrawing income from your RRSP savings. In such a case, your TFSA may be the ideal way to bridge the gap. But check with an advisor first, because 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’re still eligible to contribute to your TFSA without the earned income needed to make an RRSP contribution.

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 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.

4. You can use a TFSA to save for your parents’ health care

Are you responsible for helping aging parents? Then a TFSA can be a great way to help them with the cost of health care at home or in a long-term care facility. If it looks like your parents will be unable to fully cover such costs, you can use your TFSA to help them make ends meet. Or, you can give your parents money to contribute to TFSAs in their names, if you’ve maxed out the contributions to your TFSA.

5. You can use a TFSA to save for a rainy day

It’s an uncertain world and there’s no way of predicting the unexpected expenses that life can toss your way. For example, the COVID-19 pandemic affected many Canadians financially. 

A TFSA is ideal for letting you put aside money in good times and withdraw it – with tax-free investment growth – in bad. You can use your TFSA to cover any type of contingency, including:

  • job loss,
  • health-care costs not covered by government, group or personal health insurance,
  • home repairs or renovations,
  • car repairs and more.

6. You can use a TFSA to save for a sunny day

Saving can feel better if you’ve identified your TFSA as the place where you put money away for a wedding, a trip of a lifetime, or whatever is special to you.

Other ways TFSAs are flexible

You can “refill” your TFSA. Unlike RRSPs, RESPs or any other registered accounts, your TFSA contribution limit isn’t a one-time thing.

Let’s say you’ve contributed the maximum to your TFSA this year, but then need to withdraw $10,000. (Remembering, of course, that there’s no tax on the withdrawal, whether you’re withdrawing principal, interest or investment growth.) Next year, in addition to the regular annual contribution limit, you’ll be able to re-contribute that $10,000.

Just don’t try re-contributing in the same calendar year that you take it out, if you’ve already used up that year’s contribution room.

You can invest or save with a TFSA. Some people find the “s” for “savings” in TFSA a bit misleading. That’s because as well as putting your TFSA money in a traditional interest-bearing savings account, you can also put it to work for you in GICs, mutual funds, segregated funds, stocks, bonds, etc.

You can carry forward unused contribution room. If you haven’t used up all your TFSA contribution room, it’s not a problem. Unused contribution room automatically carries forward indefinitely, so you can contribute later.

You won’t hurt your government pension. The amount you receive from Old Age Security (OAS) begins to be “clawed back” by the government when your income is above a certain level ($77,580 in 2020). But the government formula that calculates the OAS clawback currently ignores any withdrawals you make from your TFSA. So those don’t count against you as income.

Talk to an advisor for more information

Need help getting started with a TFSA? Or maybe you want to make the most of your TFSA? An advisor can help ensure you’re getting the most value from all the possibilities of your TFSA.


This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.