5 Ways a TFSA Can Propel Your Retirement

Most Canadians know they have a TFSA.

But many still think of it as a simple savings account.

In retirement, a TFSA can be your sidekick to:

• give you flexibility 

• help you manage taxes

• provide a source of money when life doesn’t go according to plan

The two major benefits that a TFSA offers are tax-free growth and withdrawals that don’t add to your income tax burden.  

Since we get asked all the time about TFSAs, we thought it would be good to share five ways a TFSA can help propel your retirement.

1. TFSAs can give you access to tax-free money

Retirement income often comes from several places: CPP, OAS, pensions, RRSPs, RRIFs, non-registered investments, or even part-time work.

Each source can affect your taxable income differently.

A TFSA is different.

You don’t get a tax deduction when you contribute, but the money inside the account can grow tax-free. Withdrawals are generally tax-free as well.

That means if you need extra money in retirement, your TFSA may give you access to cash without automatically increasing your taxable income for the year.

A hidden superpower, right?

2. It can help cover unexpected expenses

Your spending in retirement can fluctuate according to life's circumstances.

You might suddenly need money for dental work, home repairs or a new vehicle.

But having a TFSA can act as a flexible pool of money for those unplanned expenses.

Instead of every surprise cost coming from a taxable account, your TFSA may give you another place to draw from.

3. It can help you manage your retirement income

In retirement, how much income you take and where it comes from matters.

A large RRIF withdrawal may increase your taxable income. Selling a non-registered investment may trigger capital gains. Extra income could affect your overall tax picture.

A TFSA withdrawal generally doesn’t create taxable income.

That can make it useful in years when you need extra cash but want to be careful about how much taxable income you report.

Using a TFSA as a sidekick gives your retirement plan more options.

4. It can grow tax-free

A TFSA doesn’t work like a checking or savings account. 

Depending on the account details from your bank, it can hold investments such as:

• GICs

• ETFs

• Stocks

• Bonds

• Mutual funds 

That means your TFSA can grow through interest, dividends, distributions, or capital gains.

For example, if you contributed $70,000 over time and the account grew to $90,000, that extra $20,000 of growth could generally be withdrawn tax-free.

That tax-free growth can become especially valuable in retirement.

5. When It’s Used Up, It Can Be Replenished

One of the most powerful TFSA features is the recontribution rule.

If you withdraw money from your TFSA, that amount is generally added back to your contribution room on January 1 of the following year.

So if you withdraw $20,000 this year, that room usually comes back next year.

If your TFSA grows from $70,000 to $90,000 and you withdraw the full $90,000, that withdrawal amount can generally be added back to your future contribution room.

That means your TFSA can be used, rebuilt, and used again over time within reason, as long as you follow the timing rules.

Where Do You Go From Here? 

Your TFSA can be one of your most flexible planning tools for retirement.

But it works best when it has a purpose and intention behind it. 

The real question isn’t:

Do I have a TFSA?

It’s:

What role should my TFSA play in propelling my retirement plan?

At PKAG, we help Canadians build retirement plans that hold up for decades.

If you have any questions, feel free to contact us.

You can also book a meeting with us and we can go over it in person.

We also have free, no-obligation seminars where we'll discuss AI, tax strategy, and how to stay in control of your retirement plan.

We look forward to hearing from you.

This commentary is intended to provide general information and should not be construed as tax, legal, financial, or other advice. Individual circumstances and current events are critical to sound planning; anyone wishing to act on the information presented should consult with his or her tax, legal or financial advisor.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.David Popowich, Faisal Karmali, Leanna Wachniak, Robert Gerrie are Investment Advisors with

CIBC Wood Gundy in Calgary. The views of David Popowich, Faisal Karmali, Leanna

Wachniak, Robert Gerrie do not necessarily reflect those of CIBC World Markets Inc.

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc.