With retirement coming up, maybe you’ve cut back on your work hours and have a better idea of what to expect when the time comes. You also realize that you don’t have as many financial commitments. And if you have kids, they’ll soon be leaving the nest, if they haven’t already. Your home might already be paid off or about to be, which takes a huge financial load off your shoulders.
You might have more funds at your disposal, which you could use to save for retirement and beyond—money to make the most of those proverbial golden years and reduce the chances of outliving your savings.
Consider a TFSA
Whether you’re actively planning for retirement, have recently retired or are long retired, a TFSA is a great savings and investment vehicle. It’s become very popular over the years, and for good reason: the income it generates is tax-free and you can make withdrawals with no tax penalty.
But there are many other benefits to having a TFSA. Here are 3 you should know about, especially if retirement is on the horizon.
1. Lots of good reasons to contribute
While a TFSA can meet many needs, it’s especially worthwhile if you’re in one of the following situations:
- There are special things you want to save for
- A TFSA gives you tax-free access to funds to use however you want—to buy the car of your dreams, to cover renovations or to finance anything else you want to do.
- You’ve maxed out your RRSP
- TFSA gives you another way to grow tax-free savings.
- You want to keep saving after you’ve retired
- As soon as you turn 72, you can’t make any more RRSP contributions, but there’s no age limit on TFSA contributions. Allowable contributions that haven’t been used since 2009 accumulate and carry forward; any funds you withdraw in one year will be added back to your contribution room for the following year.
2. You can still take advantage of various government credits and benefits
Since the money you take out of your TFSA isn’t taxable, you don’t have to include it on your tax return. That means withdrawals have no impact on your eligibility for federal income-based credits and benefits like:
- Canada Workers Benefit (CWB)
- Guaranteed Income Supplement (GIS)
- GST/HST credit
3. It can be transferred
Unlike an RRSP, a TFSA is not subject to family patrimony rules, but it could be part of shareable property, depending on the matrimonial regime that applies to your relationship.
In the event of death, your TFSA can be transferred to your spouse or heirs, depending on what you specified in your will. However, any unused contribution room will be lost.
Transfer to spouse
- The value of the funds at death will be transferred to the spouse’s TFSA, where they can continue to grow.
- There’s no impact on the spouse’s individual contribution room, even if it has all been used.
- The funds transferred to the spouse’s TFSA are still tax-free.
Transfer to heirs
- Heirs have no tax to pay on the value of the TFSA on death, only on the increased value generated after death.
- If the heirs have TFSA contribution room, they can then get the benefits of the TFSA by contributing the amounts they inherited.
Still have questions about TFSAs? Contact your advisor and find out how a TFSA can complement your other sources of retirement income.