Daren Givoque, CDFA, Financial Advisor
O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd.
In a previous article I spoke about the first of 3 big mistakes that people often make when planning for retirement: delaying liquidating RRSPs.
To recap in short, it will often save you tax to start withdrawing money from your RRSPs early instead of waiting until the government makes you start taking it out at age 72.
The second mistake that I often see with people when planning for retirement is not using their Tax-Free Savings Account (TFSA) effectively.
TFSAs came into effect in Canada on January 1, 2009. The maximum annual contribution room for each year prior to 2013 was $5000. Beginning in 2013 it was increased to $5,500 per year. This $500 increase is meant to happen every year to account for inflation. In 2015 the federal government raised the amount to $10,000 but it was dropped back down to $5,500 after the election.
The amount you can put into your TFSA is cumulative, meaning that if you started your TFSA after 2009 you have room to put the maximum amount allowed into the account for each of the years you missed out on. In 2020 the total cumulative contribution room for a TFSA is $-69,500.
TFSAs are a great tool, but I don’t like the name. Used effectively it is not a savings account, it is an investment account. TFSAs can hold all sorts of investments including mutual funds, GICs, Stocks, Bonds, ETFs and more.
TFSAs may be used aggressively depending on your personal situation. Money made on investments are not taxable, making it a great avenue to save for retirement. If you need to withdraw money from your TFSA to pay for current expenses the room is also always there for you to fill it back up.
There it is. Mistake number 2.