The recent federal election brought the Tax-Free Savings Accounts (TFSA) into the spotlight. The Liberals promised to lower the contribution limit from the Conservative Government’s $10,000 to $5,500. The Liberal government followed through with their promise, so the 2016 TFSA limit is now $5,500. Thankfully, Canadians aren’t losing the contribution room they’ve accumulated, so somebody opening an account today would be able to put in $46,500. The real question isn’t about how much room you have, but rather how to properly make use of the tax-free incentive. Read on to learn more about how to best use the TFSA to your advantage.
The Holistic Approach
We find that a lot of Canadians have “tunnel vision” when it comes to the TFSA. It’s much more effective to take a look at the big picture when deciding how to use the TFSA. You need to take your life goals and long-term financial plans into consideration first, and then make investment choices that will help you meet your objectives on time with an acceptable amount of risk tolerance. With that in mind, it will be easier for you to determine the securities you need to invest in, and if they are to be allocated in non-registered or registered accounts.
Short-Term Goals
If you are planning on, for example, purchasing a new car in the next five years, it would make a lot of sense to use some of your TFSA room for that goal. It would not make sense to then invest aggressively, as a risky investment could mean that there won’t be enough money in the account when the time comes for your purchase. It would be better to invest in conservative holdings to ensure some growth but also to have peace of mind knowing you will have the money when it’s needed.
Long-Term Goals
If you are looking to use your TFSA as a source of retirement income, or for other long-term goals, it would be wise to take a holistic approach instead of just focusing on one kind of account or one type of investment. In order to best save for your retirement, it’s a smart idea to build your nest egg strategically, with fixed income holdings and equity spread across different accounts. Investors should make the best use of the Registered Retirement Savings Plan (RRSP), TFSA and non-registered accounts to ensure tax-efficiency and flexibility.
Navigation through the world of registered and non-registered investments can be tricky. If you need help with your investment planning strategy, you should contact The Beacon Group of Assante Financial Management Ltd. today.
