Markus Muhs - Jun 29, 2020
Everything you want or need to know about TFSAs, in one place.
A Little History
- The CPC prefers to raise the annual limit, allowing older Canadians (with fewer years left to accumulate contribution room) to shelter more of their investments.
- The NDP thinks that the TFSA is a bad idea, unequally benefiting the wealthy, because saving $500 per month is in their opinion out of reach for most Canadians.
- The LPC is somewhere in between, not wanting to benefit the wealthy too much with too-high contribution limits, but not wanting to upset many middle-class Canadians who take advantage of their TFSA contribution space annually.
Contributions & Withdrawals
What Can a TFSA Be Used For?
- Savings: TFSA builds up to a little over $200,000 ($50,000 of tax free interest income)
- Invested: TFSA builds up to over $330,000 ($180,000 of tax free investment income)
- $2000 contributed in January
- $2000 spent on vacation in February
- $2000 put back into the plan in March
- Another $2000 contributed in July
- $2000 taken out for Christmas gift shopping in November
- $2000 year-end bonus contributed in December
RRSP or TFSA for Retirement?
The Tax Free Legacy Plan
- Defer converting the RRSP to RRIF as long as possible (age 71) in order to defer taxes as long as possible, then only take minimum payments.
- Use up non-registered assets in early retirement: these are easily accessible and draw annual taxation on investment income, so you might as well use them up.
- Use TFSA assets also, or stop contributing to it after retirement, or direct it to shorter-term goals.
- Convert RRSPs to RRIFs immediately at retirement and draw out more than the RRIF minimums; enough to draw them down entirely by the time you’re in your 80s and are more likely to expire.
- Draw from non-registered investments to make up the difference in expense needs.
- Keep maxing TFSA contributions annually for the rest of your life or until the other buckets run out of money; only then draw from them.
Markus Muhs, CFP, CIM
None of the aforementioned should be construed at specific tax or legal advice, as everyone's situation is different. Have a personalized financial plan done with a Certified Financial Planning professional, such as myself, and consult with tax and legal specialists as needed. Assumed growth rates are examples only; when used in comparisons above a lower or higher growth rate does not materially affect the strategies discussed when both rates are equal.