In 2019 you can contribute $6,000 to your Tax-Free Savings Account (TFSA), bringing the cumulative total of allowable TFSA contributions to $63,500, or $127,000 for a couple if they have never contributed to their TFSAs. This means that a TFSA can help meet a variety of investment objectives.

Your first decision

First, look at all components of your financial plan and decide where TFSA investments can help you the most. Below are a few examples.

Education. To meet today’s increasing education costs, a TFSA can boost savings in addition to a Registered Education Savings Plan (RESP), and a couple with more than one child can dedicate both accounts to the goal.

Retirement. As a retirement savings vehicle, a TFSA can build an income source that’s tax-free and doesn’t affect eligibility for Old Age Security (OAS) benefits.

Estate planning. A TFSA has great flexibility for estate planning purposes – possibly providing heirs with a tax-free inheritance, offsetting taxes payable by your estate, or leaving a charitable gift and claiming the charitable donation tax credit.

Tax planning. As an income-splitting strategy, funds can be gifted to your spouse, children or grandchildren, which they contribute to their own TFSAs.

Savings. A TFSA is ideal when saving for a short-term purchase, such as a vacation, as withdrawals are added to contribution room the following calendar year. You can also use a TFSA as an emergency fund.

Once the use is determined, your advisor can recommend which investments suit your goal and risk tolerance.

Future steps

Your TFSA investments may change when your goal’s time horizon shortens. For example, a TFSA for education savings typically becomes more conservative as secondary school graduation approaches.

Your investments may also change greatly when your goal changes. That TFSA for education savings? After your child graduates from university, your TFSA may transform into a growth-oriented account for your retirement.

Contact your advisor if you wish to discuss how the TFSA can benefit you the most. Use the TFSA vs. taxable investment calculator to discover the tax-free growth advantage of investing in a TFSA instead of a taxable investment account.