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The goals-based approach to TFSA investing

Published on: August 28th, 2023


Investors’ ways of using the Tax-Free Savings Account (TFSA) have evolved over the years. Initially, after the 2009 launch, it was common to primarily choose fixed-income investments – the rationale being to hold the most highly taxed investments in a tax-free environment. Then a movement developed to focus on equity investments, based on the idea that you’ll gain the most from equities when growth and withdrawals are tax-free.

The next phase changed everything. Instead of first looking at which investments to choose, account holders looked at which specific need their TFSA would meet.

One vehicle, multiple uses for a TFSA

Investors use TFSAs for virtually every wealth planning need. You can achieve a short-term goal, like saving for a kitchen renovation, and after the withdrawal you can replenish the funds the very next year, or immediately if you have contribution room available. Parents can use a TFSA for education savings, supplementing a Registered Education Savings Plan (RESP). TFSAs can be a valuable income source during retirement, as withdrawals are tax-free and don’t affect Old Age Security (OAS) benefits. In estate planning, TFSAs can meet a variety of needs, including helping offset taxes payable by the estate. As a tax-planning measure, you can split income by gifting funds to your spouse or children, which they can contribute to their own TFSAs.

Identify your goal

Once you choose your goal, you’ll also know your time horizon. Knowing when you need the money is essential to choosing investments for your TFSA. An individual may invest conservatively to fund next year’s family trip but would choose growth-oriented investments to help fund a retirement that’s 20 years away. The goal helps determine the investments, and with a TFSA, all investments save you tax.

As always, we recommend that you talk to your Assante advisor to see how best a TFSA can fit into your financial plan.

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