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Tax planning

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The TFSA: a useful vehicle for retirement planning

But have you thought about investing in a Tax-Free Savings Account (TFSA) to fine-tune your strategy?


Each year, you put aside some of your income to prepare for retirement, whether you contribute to a Registered Retirement Savings Plan (RRSP) or take part in your employer-sponsored pension plan. But have you thought about investing in a Tax-Free Savings Account (TFSA) to fine-tune your strategy?

Outstanding flexibility

As its name suggests, the TFSA allows you to increase your money with no tax consequences. The returns on your investments and your withdrawals are both tax-free.

On reaching retirement, you should have already planned a budget based on your needs, plans and interests.

While some expenses will recur each year, you may have occasional projects or events. For example, you may want to:

  • Carry out a renovation project
  • Purchase a recreational vehicle
  • Take a dream trip

For such occasions, the TFSA’s flexibility is an undeniable advantage. As a general rule, amounts withdrawn from the TFSA are non-taxable; so you could finance your occasional projects without increasing your tax bill.

With proper planning of your RRSP withdrawals and other pension income (Quebec Pension Plan, Old Age Security and employer pension), you can build a plan that takes your tax reality into account.

Wise use of a TFSA could minimize the tax payable on your investment withdrawals and have a positive effect on your wealth during retirement. For example, if you expect your tax rate to increase during retirement, it may be beneficial to emphasize a TFSA over an RRSP.

In addition, the amounts you may receive from social programs, such as the Guaranteed Income Supplement, Old Age Security or even Employment Insurance, will not be reduced if you withdraw an amount invested in a TFSA.

Lifetime savings and investment solution

One of the appealing features of the TFSA is that is has no expiry date. It’s an account you can keep for your entire life. You can even keep contributing during retirement if your situation allows it.

Upon death, no tax will be payable. The money transferred to your estate will be tax-free but will lose its registration as a TFSA.

In Quebec, you can name your spouse as the beneficiary of your TFSA in your will. Your spouse will be able to transfer the amounts to his or her own TFSA as a contribution not subject to the usual limits and will retain the tax benefits.

TFSA rules

To open a TFSA and make contributions, you must be 18 years of age and have a social insurance number (SIN). If you moved in Canada after 18 years old, your contribution room starts from the moment you get your SIN. There is no deadline, but there is an annual contribution limit. For example, you could invest up to $6,500 in a TFSA in 2023, regardless of your income.

Take note, however, that your contribution room is cumulative from the year in which you reach the age of majority. If you turned 18 in 2019, you can invest $30,500 in a TFSA in 2023. Your contribution room is also adjusted if you make a withdrawal. For example, if you take $2,000 out of your TFSA, you’ll recover the same amount of contribution room the following year.

If you exceed your contribution limit, you’ll have to pay a penalty of 1% a month on the excess amount. That’s money you could do without spending!

Check your online account at the Canada Revenue Agency to find out how much you can put into a TFSA without penalty.

But one question remains: When and how can you make withdrawals? The answer: Whenever you want. If you have an unforeseen expense, you can get your money back immediately, without having to give any reason. It’s as simple as that!

Are you seriously considering including TFSA in your retirement plan?

If so, you can use the simulation tool on our online client portal. It will give you an overview of how much you need to save to enjoy your old age to the full. Our Advisory Services team will then help you add a TFSA to your investment strategy.

Make a simulation

A word to the wise

RRSPs and TFSAs are complementary, non-competing savings vehicles. To help you decide how much of your savings you should put into each of them, consult your advisor for recommendations adapted to your financial situation.

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