Stop Viewing Your TFSA As Just A Savings Account

If you have a Tax-Free Savings Account (TFSA), stop using it just to save money. Instead, leverage the real power of this account to build a robust investment portfolio. Without paying any tax on that wealth.

Yes, the government used the word ‘savings’ in its name, but it’s really about much more than socking away some cash. Here’s how to make the best use of this tool in your wealth strategy.

Within a TFSA, you can hold virtually any type of investment. Including mutual funds, exchange-traded funds, real estate investment trusts, stocks, bonds, and guaranteed investment certificates.

A well managed portfolio can offer you satisfying returns, and none of it will be subject to tax. Be sure to reinvest any growth so that compounding will accelerate the value of your investments over time.

As with a Registered Retirement Savings Plan, there is a yearly contribution limit. This year, it’s set at $6,000. However, your contribution room has been accumulating since the TFSA was introduced in 2008. If you were 18 years or older at that time (the age you must be to open a TFSA), it is currently at $75,500.

To learn your personal limit, check your annual Notice of Assessment from last year’s tax return. Then add $6,000 for this year. You can also verify your contribution room through the My Account section of the Canada Revenue Agency (CRA) website.

Don’t confuse a TFSA with an RRSP. Contributions made to an RRSP offer a tax deduction today, which is appealing. However, when you withdraw cash in retirement, you must pay that deferred tax bill. A TFSA offers no tax deductions but is permanently tax sheltered. Combined with shrewd financial planning, it can reduce your tax burden in your golden years.

While leveraging the opportunity to grow your investments, you can also withdraw cash at any time, without penalty. The lost contribution room can be reused the following calendar year.

TFSA contribution limits are projected to continue rising in the future, but of course there are no guarantees. So, get to work on developing the potential of your TFSA. It’s about much more than just saving money. Ask your Financial Advisor to help you create a powerful investment strategy for your account.