TFSA | A savings tool of rare versatility

The TFSA is a flexible tool that allows you to grow your money tax-free. Yet the option remains misunderstood and misused: nearly half of Canadians still wonder what it consists of, according to a Pollara Strategic Insights survey. Three experts reveal how to get the most out of this savings tool.

“The TFSA is an extremely versatile tool. It can help retirees as well as young people aged 18 and over,” says André Lacasse, financial planner with Services financiers Lacasse, in Saint-Hubert. He’s not the only one to think so. The financial planners consulted by The Press all agree on the interest of the tax-free savings account.

If you have to have reached the age of majority to be able to contribute, Émilie Dion-Roy, notary, tax specialist and financial planner at Desjardins, reminds us that there is no age limit, unlike the RRSP. We invest in the TFSA hoping to make the most possible returns, while respecting our investor profile and risk tolerance, of course. Here are five ways to use it.

For young investors

André Lacasse suggests to young people who have not yet started saving to deposit an amount up to their means each month in a TFSA, and to review it as their salary increases. “A 25-year-old who begins, for example, to contribute $250 per month in a TFSA with a rate of return of 5%, and who indexes his contribution by 3% per year, will have accumulated nearly $300,000 after 30 years. . »

The financial planner also gives a tip for tenants. “If we have a rent of $1,000 and a condo would cost $1,500, we can deposit the $500 difference in a TFSA each month. If we have discipline, 25 years later, we have created a heritage. »

The key to success, as Émilie Dion-Roy points out, is to start contributing as early as possible and to have a clear idea of ​​your budget.

For emergencies or a project

As Ravy Pung, senior investment and financial planning advisor at the National Bank, reminds us, we should have at least three months of expenses – ideally six – aside to deal with the unexpected. A TFSA can be a good place to build a reserve. The funds are indeed often accessible in no time and there is no tax to pay on the sums withdrawn.

“In the short term, we generally recommend less volatile products, such as guaranteed investment certificates (GICs) or even cash”, specifies the expert, adding that nothing prevents you from continuing to save even when the goal is hit.

For buying a house

Émilie Dion-Roy believes that the CELIAPP (or the tax-free savings account for the purchase of a first property) is ideal for first-time buyers. “It’s a hybrid between the TFSA, the RRSP and the HBP. What is interesting is that you are entitled to a tax deduction when you contribute. As with the TFSA, the amounts withdrawn are tax-free if they are used to purchase a home.

This new registered account will come into effect on 1^er April 2023. You will be entitled to deposit $8,000 per year up to a maximum of $40,000. “And the TFSA can certainly contribute to the down payment for the purchase of a house,” adds the specialist.

For the long term

Even if the TFSA is often used for a very specific project, such as renovations or a wedding, its strength lies in the long term. “If you invest $5,000 for a year, it’s true that there’s no tax, but there’s not a lot of return either,” explains André Lacasse, who moreover laments that many consider the TFSA as a simple savings account.

To save for retirement, stocks, exchange-traded funds (ETFs) and mutual funds are excellent choices.

For retirees

The TFSA can grow tax-free for your lifetime. There are no mandatory withdrawals, as there is with an RRSP after age 71. “It allows you to have tax-free income in retirement,” explains Ravy Pung.

The TFSA also allows retirees to take advantage of various tax strategies. “After age 65, a retiree who earns more than $86,912 will pay a recovery tax on his old age security pension, illustrates André Lacasse. By withdrawing his TFSAs rather than his RRSPs, he can avoid losing his pension. »