As retirement approaches, it’s common to reassess your lifestyle… and your finances. Gradually, your financial commitments tend to decline: children become financially independent, the mortgage is paid off — or nearly so — and certain recurring expenses decrease.
This new context can free up cash flow. When used wisely, those funds can help strengthen your savings, both while you’re planning for retirement and once retirement has begun. The goal? To give you greater financial flexibility so you can fully enjoy this new stage of life, while reducing the risk of running out of money over time.
With this in mind, the Tax-Free Savings Account (TFSA) deserves your full attention.
Whether you’re actively planning for retirement, recently retired, or well into retirement, the TFSA remains a highly flexible savings and investment tool. Its popularity is largely due to two key features:
- investment income earned is not taxable;
- withdrawals can be made without any tax consequences.
But the TFSA also offers other advantages that are especially relevant when retirement is part of your short- or medium-term plans.
1. A TFSA that adapts to different stages of life
A TFSA can meet a variety of financial needs, including the following situations:
You have projects that matter to you
Funds invested in a TFSA are accessible at any time. This flexibility allows you, if needed, to finance a personal project — such as purchasing a vehicle, renovating your home, or other goals — without paying tax on withdrawals.
You’ve maximized your RRSP contribution room
In this case, the TFSA is a complementary option to continue growing your savings tax-free.
You want to keep saving in retirement
Starting the year you turn 72, you can no longer contribute to an RRSP. The TFSA, however, has no age limit. Unused contribution room since 2009 accumulates over time, and amounts withdrawn are added back to your contribution room the following year.
2. TFSA withdrawals do not affect certain credits and benefits
Withdrawals from a TFSA are not taxable and do not need to be reported as income. As a result, they do not affect eligibility for certain income-tested government credits and benefits, including:
- the Canada Workers Benefit (CWB);
- the Guaranteed Income Supplement (GIS);
- the GST/HST credit.
This feature can be particularly advantageous when managing your overall retirement income.
3. The TFSA can help with estate planning
Unlike an RRSP, a TFSA is not subject to family patrimony rules. However, it may be included in the division of assets, depending on the applicable matrimonial regime.
At death, a TFSA can be transferred to your spouse or to your heirs, according to your wishes as set out in your will. Please note: unused contribution room is lost at death.
Transfer to a spouse
- Funds are transferred to the spouse’s TFSA.
- The spouse’s own TFSA contribution room is not affected.
- Transferred amounts continue to grow tax-free.
Transfer to heirs
- The TFSA’s value at the time of death is not taxable.
- Only growth accrued after death may be taxable.
- If heirs have available TFSA contribution room, they can, in turn, benefit from the advantages of this plan.
Do you have questions about the TFSA?
Contact the Member Services Centre at 1 800 463-6984, Monday to Friday, 8 a.m. to 8 p.m., or by email at batirente@dsf.ca.