Saving for Retirement Using a TFSA

Retirement planning means looking to the future, but it also means strategically using your retirement savings when it comes time to retire. Tax-Free Savings Accounts (TFSA) offer many opportunities to save for the future, decrease taxes, and push your savings further.

Here are some of the best ways to use a TFSA:

1. Grow your savings faster with investments.Unlike a Registered Retirement Savings Plan (RRSP), TFSAs make you pay tax on the money in your account upfront, and then you can invest it. Here’s where things get good, though. You don’t pay tax on the investment gains in your TFSA because you already paid tax on the initial capital in the account.

2. Save for your beneficiaries.
   
   TFSAs are a great way to put something aside for your beneficiaries. You can use a TFSA to save for your children’s education and make an excellent addition to a Registered Education Savings Plan (RESP). And if your child decides not to go to school, they can use that money towards something else.Want to save money for your loved ones for when you’re gone? A TFSA allows you to put money aside for your beneficiaries without having them pay taxes on the amount. Be sure to speak with a financial advisor to set this up properly.
3. Save more when it works for you.When you’re just starting your career and are in a lower tax bracket, you pay the tax on this money at a lower rate. As you progress in your career and begin paying more in taxes, an RRSP may make more sense. A TFSA is always great for saving for expenses, such as a house or a new car, and when you withdraw this amount, you can deposit it back in. Withdrawals roll over into the following year, along with any unused contribution room.

   Here’s an example: You’ve been putting $6000 in your TFSA for four years. One year, you withdraw $10,000. Next year, you can contribute up to the $6000 limit, plus the $10,000 you took out the previous year. An RRSP won’t allow you to do that!

4. Retire early!Most government or workplace pensions only become available after a certain age. With a TFSA, you can retire early and live off of these savings without having to pay taxes in a higher bracket or tapping into your RRSPs too early.

   TFSAs offer numerous benefits both in retirement and as a resource for planning for your future retirement. In retirement, an RRSP has to be converted over into a Registered Retirement Income Fund (RRIF) by age 71. This means you have to start withdrawing money from these savings and will thus be taxed on this money. However, if you don’t want to be spending this money, you can then move it into your TFSA and continue benefiting from compound interest on these savings.

Ultimately, thanks to compounding interest, the sooner you start saving — the better. You can also invest the money in your TFSA and grow this nest egg faster. Investing in real estate through your TFSA is an excellent way to increase your savings with some of the security that the real estate market offers. Investing in pooled mortgage investments offers even more protection. Get in touch with Jordan on our team today to learn more about using mortgage pools and TFSAs to your advantage.