Tax-Free Savings Accounts (or TFSAs) were launched in 2009 as a new savings option for Canadians. Like their cousin, the RRSP, TFSAs are great for retirement saving and growing your wealth through smart investing. Unlike the RRSP, your contributions to a TFSA are “after-tax”, meaning you won’t see an immediate gain. However, all investment growth within a TFSA is tax free, meaning you won’t be taxed regardless of when or how much you withdraw.
What’s more, TFSAs offer the flexibility to use funds when and how you need them. Canadians have warmed up to TFSAs, but often aren’t sure how to use a TFSA to maximize their potential in helping them reach their savings goals. Here are a few ideas to get you started:
TFSAs are best used as a savings vehicle, and best leveraged for investments that pay higher interest rates than regular savings. This will allow you to take full advantage of the TFSA’s main benefit – tax free investment growth.
Rainy day fund (emergency fund)
TFSAs offer flexible, easy access, with no tax penalties. Give your rainy day fund a boost by saving in a TFSA. And, even if you do have to withdraw money, you get the contribution room back the following year, which means you can start re-building your emergency fund.
Saving for the extras
TFSAs are great for mid- and long-term savings goals. If you are planning a large family getaway, TFSAs can be a great way to boost your savings.
Life is full of milestones: weddings, first home, home renovations, retirement, and before you know it …your child’s first car, your child’s education, your child’s wedding. Navigating through life means there are always financial milestones in your future. Plan ahead by saving in a TFSA.
Manage fluctuating income
If you are self-employed or freelance, or if your income otherwise fluctuates, consider keeping windfalls in a TFSA. You’ll have the ability to make transfers to RRSPs in fat years, or supplement your earnings in lean years.
If you retire early, you may not be eligible to receive government or workplace pensions until you reach a specific age. Saving ahead with a TFSA might be the ideal bridge that lets you retire ahead of the game.
Saving in your retirement
TFSAs are meant for whole-life saving. You can’t own an RRSP past the age of 71, but you can open and contribute to your TFSA throughout your lifetime. These savings can fund your retirement travel, leisure hobbies, or other large purchases you’ll need after you retire.
Get started today by seeing how much more you could save with a TFSA by using our savings calculator.
When you’re ready to take the next step, visit an SCU branch or call us at 1.800.728.6440. We can help you decide if a TFSA is right for your savings needs.
* The above is provided for information purposes, and is not intended to serve as a substitute for having a conversation with a specialist at SCU who can help guide you through your unique circumstances. When you are ready to explore TFSAs and find out how they can work for you, contact SCU at 1.800.728.6440 to learn more and get started.