How Should I Use My TFSA?
If you have non-registered investments attracting taxable income, consider moving them into a TFSA where the investment income will be tax free.
Depending on your child’s aspirations, your RESP may not cover 100% of their post-secondary education. Once you maximize the RESP government grant, top of your savings through your TFSA. Investment growth is tax-free like the RESP and there is no penalty if your child chooses an alternative path.
You can save for a down payment on a home. While there are alternative options like the Home Buyers Plan using your RRSP and the new First Home Savings Account, that may not be enough to fund your down payment. Your TFSA can supplement those savings when the down payment required exceeds the HBP and FHSA limits. If your savings through these plans are sufficient, remember that you will need a deposit when you secure an offer, legal fees, moving expenses and realtor fees. Your TFSA is a great source of cash flow for these additional expenses.
Use your TFSA to supplement your retirement income. Withdrawals are not considered taxable income allowing for more tax planning, and it will not impact eligibility for government benefits like OAS and GIS. You can also give money to your spouse to contribute to their own TFSA to equalize future incomes and lower your family’s tax bill.
TFSAs allow contributions for life, so if you continue to work past 71 or have excess cash flow from your CPP, OAS, and RRIF income, you can save it in your TFSA as contribution room allows.
If one of your goals is to help support your children financially, whether it be for a down payment on their home, a wedding, etc, you can give them money to fund their own TFSA once they reach age 18. Income earned on the investment is not attributed back to you, so there is no tax concern. Remember that your child will have full control of these funds, so ensure they are responsible.
Save for a project, goal, or rainy day. The beauty of a TFSA is its versatility. The savings do not need to be long term, or play a role in a sophisticated financial plan. You can simply use it to fund your next vacation, complete a home renovation, or act as an emergency fund, because let’s face it, the day will come when that roof needs to be replaced!
The flexibility is only limited by the contribution rules! Remember that any withdrawals are added back to your contribution room, but not until the following calendar year. Also take caution with how you choose to invest within it. If you know you are saving for a short-term goal, consider a more conservative investment approach.
If you want to talk TFSAs or set up an account, talk to your trust Zavitz advisor!