Since the introduction of the Tax Free Savings Account (TFSA) in 2009, anyone 18 years of age or older at that time who has never contributed to a TFSA savings account would be eligible to place up to $63,500 into one, beginning in the 2019 tax year.
In my opinion, the last two words of the acronym have done a great disservice to the investment opportunities the TFSA represents: it is more than just a Savings Account.
TFSA Savings Accounts have the same investment options as RSPs.
Deciding on the appropriate investments for your TFSA savings account follows the same process as other components of your portfolio: what asset mix will allow you to sleep at night and what might you need to draw from your portfolio in the next 3 to 5 years?
A liquid, high-interest daily savings account may be the best option for those using a TFSA to partly or fully fund emergency savings. But what is the appropriate level for an emergency fund? 3 to 6 months of income allows one to deal with interruptions in employment as well as financial emergencies.
A typical financial emergency may be to replace a gas furnace. The top-end list price for a furnace is $7,500 and with a TFSA daily savings of $57,500 you could purchase 7.6 furnaces!
The point is that if your TFSA savings account holds too much in daily savings and/or short term deposits, you are not taking advantage of the longer term planning benefits a TFSA provides.
Think both short- and long-term for your TFSA savings account
Consider retirement planning: a withdrawal from a TFSA is not taxed, whereas the full amount of an RSP or RIF withdrawal is added to your income. This makes a TFSA an ideal complement to your RSP, particularly when it comes to addressing lump sum needs in retirement.
If you do not require TFSA money for at least 7 years, a more balanced investment approach may be more profitable. A retirement savings may be more effectively accumulated through a TFSA in some situations.
How efficient is your TFSA savings account?
Talk to your Scrivens advisor about your plan and unlock the full potential of your TFSA.
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