My Love for the “TFSA” Tax Free Savings Account

The Tax Free Savings Account is my hands down favourite account registration. I do find that it is often misunderstood, so let’s add some clarity.

What is TFSA (Tax Free Savings Account)?

The TFSA is not a fancy bank account. Please don’t use it as such. Instead, you should use a traditional savings account to park your extra cash for your emergency fund, annual vacation savings or the money you’re pooling for your vehicle. I do suggest that if you have access to a liquid High Interest Savings Account (“HISA”), use it. I’ve seen 4.45% offered through our service providers. Be forewarned that a HISA will create annual taxable interest, but it’ll be nominal if it’s based on a balance of $10-$20k. 

The TFSA is designed for long term (1 year +) wealth accumulation. The money in the account should be invested in alignment with your personal risk tolerance. 

That being said, from this Certified Financial Planner/Wealth Manager’s point of view, please do NOT park cash in this account. That is what the previously mentioned HISA is for. Cash inside a TFSA completely defeats the power of the TFSA.

Why do I say that?

The answer lies in the name of the account. Tax FREE. There is no tax. None. Ever. 

What Steps Should You Take To Make the Most Out of Your TFSA Investment?

Invest the proceeds of your TFSA to grow your wealth. Dividend paying investments are great, complimented with an allocation towards a fixed income investment in the current high-rate environment. Using balanced funds are ideal for those with low-medium risk tolerances. If you have the opportunity to trigger capital gains within your TFSA, consider doing it. The gains are yours and you don’t need to share them with the CRA. 

When you invest in your TFSA using segregated funds, you can protect 100% of your invested principal for estate transition. You can lock in market growth with resets. This combination of TFSA tax sheltering and wealth preservation is just incredible for investors, especially those age 60+ who are keen to enhance their wealth. 

I love the estate planning benefits of the TFSA. It is the ONLY account that will send the proceeds to any named beneficiary (spouse, child, grandchild, best friend, charity) without tax consequences. 

I get goosebumps when I think of how powerful this one little account is. I hope that you are using yours to its true potential. If not, let’s talk.

At Tayler Insurance & Estate Planning our solutions are simple and tax efficient. We help retirees grow their wealth and plan to protect their legacy.

Taivi Tayler, RRC^®, CLU^®, Certified Financial Planner^®

 www.taylerinsurance.com