4 Strategies for Your TFSA In Retirement

TFSA, Calgary

The truth is, most Canadians still do not understand what a TFSA is, never mind, what to do with it or how to maximize it.

A Tax-Free Savings Account (TFSA) is an account that you can set up through most financial institutions in Canada. The government allows you to put "after-tax" money into this type of account and grow it on a "tax-free" basis. Within the account you may invest your money in Stocks, Mutual Funds, Segregated Funds, GIC's, ETF's, etc - basically, whatever is available at the institution you've opened the account with. If you receive a gain from your investment you DO NOT have to pay tax to the government on that gain.

It's really of no value having a TFSA if you do not know what it is and what your investment options are. Most banks will just get you to open the account and let your cash sit in it earning little or nothing at all. They then loan your money back to you, your family and friends at higher interest rates in the way of credit cards, mortgages and car loans. They do not want you to understand how it works because you wouldn't do it any longer.

Related article: Using the Bank's Money to Build Your Wealth

Here are 4 good strategies for your TFSA:

1.) Emergency Savings. It's a good strategy to have 3-6 months saved up for an emergency. Loss of job, going home for a funeral, illness, furnace breakdown. Make sure your investment choices are both liquid (easily accessible) and invested in something that can earn at least 3%.

2.) Funeral Planning. This is a great way to save up money for your final expenses ($15-25K). This is especially beneficial for someone who doesn't qualify for life insurance at a reasonable rate because of age or health status. Final expenses may extend beyond the cost of a funeral and include such items as credit card balances, accounting fees, taxes, and other expenses associated with your estate.

3.) Retirement Planning. The TFSA is a great way to have some money kind of "hidden away"  because it doesn't interfere with the calculation in determining "OAS Clawbacks" or qualifying for other government programs like long-term care. We also like to use it to transfer a client's RRIF payment in the case where they don't really need the money now, but want to save for any future Long Term care needs. An added bonus to having your money inside a TFSA at time of death is that it can be given to your family tax-free and immediately following your death - outside of your will and it isn't included in probate.

4.) Employer Stock Option Plan. Many employers offer various investment plans to their employees as a bonus or a way to encourage loyalty. If the TFSA is an option within your company jump on the opportunity. All that growth in the form of dividends, free money and stock growth will be yours to keep and grow on a tax-free basis. That's a big score for you.

To recap. A TFSA is not a bank account to be used to move money in and out monthly. It is of no value to you if it isn't growing - the tax on nothing is nothing. However, if used properly it is one of the best investment vehicles we have in Canada. 


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Retirement income, investment, and tax planning,

Willis J Langford BA, MA, CFP



Everyone Needs and Deserves Quality Retirement Income Advice!


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