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3 ways to use a TFSA in retirement

Whether you’re still earning or need additional income, the TFSA offers tax-free solutions
Aquiles Rosales, Investment Advisor, Credential Securities, Prospera Insurance Agencies in Agassiz.

When we retire, many financial tools take on a completely different role than in our busiest earning years.

Instead of contributing to a Registered Retirement Savings Plan or pension, we may start drawing from them. Instead of investing for growth, we may shift our focus toward protecting capital and investing for income.

But one of the most useful financial management tools Canadians have actually operates in a similar way before and after retirement. It may also be one of the least well-used, says Aquiles Rosales, Investment Advisor, Credential Securities, Prospera Insurance Agencies here in Agassiz.

Tax-Free Savings Accounts have been around for a decade or so, yet many people are not using them to their full potential, Rosales says. “People don’t really understand how good the TFSA is. By not using it, you’re basically saying you want to pay more tax. And in retirement, every little bit helps if you’re reducing your tax liability.”

Here’s a look at 3 ways to use a TFSA in retirement

No. 1: Keep contributing. If you’re earning more income than you need – maybe you’re still working part-time, running your own business, or you have extra money from rental properties – a TFSA is a great place to keep building savings tax-free.

There’s no upper age limit for TFSA contributions and “if you haven’t used it in previous years, the room doesn’t expire,” Rosales says.

Those who come into a lump sum, such as an inheritance or proceeds from downsizing, can put that into their TFSA, up to their maximum.

One caveat, Rosales notes, is that “people need to be careful to check their Notice of Assessment so they don’t exceed their contribution room, because the penalties can be hefty.”

No. 2: Supplement income. For those needing to supplement their living expenses, or pay for a significant expense, like a roof repair or travel, the TFSA offers a tax-free solution.

Compared to withdrawing money from your RRSP or RRIF, one of the biggest benefits of the TFSA is that it’s not considered a taxable income, Rosales says. “And in addition, because it’s not income, it doesn’t claw back any of your government supplements, such as Old Age Security and the Guaranteed Income Supplement.”

And even if you do take some money out of your TFSA, you gain that room back, if you have additional funds next year.

No. 3: Leave a tax-free bequest. The fair market value of any money left in your TFSA when you die transfers tax-free to your heirs. You can streamline the transfer between spouses by naming each other as “successor holders,” but any heir designated as your TFSA beneficiary will receive that gift from you tax-free.

Have questions about using your TFSA in retirement? Rosales invites you to drop by the Agassiz Prospera branch from 9:30 a.m. to 5 p.m. weekdays, or Saturdays until 3 p.m., or email to connect.

Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Prospera Insurance Agencies Ltd. provides life, disability, and critical illness insurance, annuities, and full business solutions such as group benefit plans, succession planning, and business owner insurance.