Home Savings and retirement 5 beneficial ways to use your TFSA

5 beneficial ways to use your TFSA

0
159

By Dave Dineen and the Sun Life team
The Tax-Free Savings Account (TFSA) is much more flexible than you imagine. Could you find out how to make the most of it?
Easy question: what is your Registered Retirement Savings Plan (RRSP)? You will probably answer:

saving for retirement;
reduce taxes.
Now, do you know what your tax-free savings account (TFSA) is for? For many, the answer is less clear. It’s not because a TFSA isn’t helpful. Instead, it is because it can be used in many ways.

The TFSA was created in 2009 by the Canadian government. Since then, it has been part of many people’s financial plans. How could the TFSA be useful for you?
Here are five beneficial ways to use the TFSA.

  1. Use a TFSA for your children’s education
    Before post-secondary studies. Did you get the maximum government grants through a Registered Education Savings Plan (RESP)? So your TFSA is the perfect tool to save more for your children’s education. You do not pay tax on capital growth. Plus, there’s no penalty if your kids choose not to go to college or university.

During post-secondary studies. Have you already contributed the maximum to your TFSA, and your children are 18? You can give them money to open their TFSA. (Warning: they are not required by law to use the funds in this TFSA as you would like.)

  1. Use a TFSA to help your kids save
    After graduation, you can continue giving your children money to contribute to their TFSA. You could help them with:

A down payment for the purchase of a house,
Pay part of the fees for their wedding
Help them start their business
However, remember: your children are not required by law to use the money as you would like.

  1. Use a TFSA to fund your retirement
    Increase your retirement savings with your TFSA. Have you already reached your RRSP contribution limit? The extra savings will come in handy one of these days.

Convert your retirement savings into retirement income
Retire early. You may not be eligible for government or employer pensions right away. And you may not want to start earning income from your RRSP. In that case, your TFSA can be the perfect bridge. However, consult your Sun Life advisor. Effectively funding early retirement can be tricky.

Continue to save in retirement. Are you unemployed? Your part-time business does not bring you profit? You may not be earning enough money to contribute to an RRSP. But you still have the right to contribute to your TFSA.

Keep saving after age 71. You can no longer have an RRSP after the year of your 71st birthday. You must convert it into a Registered Retirement Income Fund (RRIF) or a payout annuity before the end of the year. Or you must withdraw the cash and pay the tax due. But you can keep your TFSA. And you can contribute to it for as long as you want.

What will you do with your RRSP when you turn 71?
How do RRIFs work?
Use the TFSA as a source of tax-free income. Talk to your advisor about how and when this is a good strategy.

  1. Use a TFSA for your parents’ health care
    Are you helping your elderly parents? Long-term care facility costs can be expensive. If they can’t afford it all, you can use your TFSA to help them. You can also give them money to put into a TFSA if you’ve maxed out your contributions to yours.
  2. Use a TFSA to build an emergency fund
    We don’t know what unexpected expenses life has in store for us. For example, the COVID-19 pandemic has had financial consequences for many people.

The TFSA is ideal for building up an emergency fund. You grow your investments tax-free, and you can withdraw money as needed. The TFSA can be used to deal with all kinds of unforeseen events:

Job Loss
Health care not covered by public, group or personal insurance
Home repairs or renovations
Repairs to your vehicle
Need advice to get started?
Want to open a TFSA account today? Or understand whether you should invest in your TFSA, your RRSP or both? A Sun Life advisor can help you invest wisely.

NO COMMENTS

LEAVE A REPLY

Please enter your comment!
Please enter your name here