Great things you can do with your TFSA

Great things you can do with your TFSA

A Tax Free Savings Account (TFSA) is far more versatile and powerful than you might think.  I know – I’ve been using a self-directed Tax-Free Savings Account for years with great success. On that note, I’ve never really been a fan of the account name as it barely scratches the surface of defining this account type.

Since this account was introduced in 2009, adult Canadians have had a tremendous opportunity to save and grow their wealth tax-free like never before.  While the TFSA is similar to a Registered Retirement Savings Plan (RRSP) there are some notable differences.

As with an RRSP, the TFSA is intended to help Canadians save money and plan for future expenses. The contributions you make to this tax-free account are with after-tax dollars and withdrawals are tax-free. You can carry forward any unused contributions from year to year. There is no lifetime contribution limit.

For savvy investors who open and use a self-directed TFSA for their investments, these investors can realize significant gains within this account.  This means one of the best things about the TFSA is that there is no tax on investment income, including capital gains!

How good is that?!

Here is summary of many great TFSA benefits:

  • Capital gains and other investment income earned inside the account are not taxed.
  • Withdrawals from the account are tax-free.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits.
  • Anything you withdraw can be re-contributed in a following year, in addition to that year’s contribution limit.
  • While you cannot contribute directly as you could with an RRSP, you can give your spouse or common law partner money to put into their TFSA.
  • TFSA assets could be transferable to the TFSA of a spouse or common-law partner upon death.
  • The annual contribution limit is indexed to inflation in $500 increments.
  • And much more!

Since inception, here are the annual and cumulative limits assuming no withdrawals over that period were made:

Great things you can do with your TFSA - Contribution Table

Conceivably by now, some couples might be well over $200,000 in combined invested assets thanks to TFSA assets held and grown inside this powerful account over the last decade.

So, if you haven’t already thought about it, here are some of my favourite ways I tell readers they can save and invest with a TFSA.

  1. Save for your kids’ education

If you’ve already saved for kids’ education using a Registered Education Savings Plan (RESP) then you should know your TFSA is a great place to save more for your kids’ education.  As you know from my list above, you’ll have zero taxes on the growth within the plan and there will be no tax consequences with this account if your children choose not to go to college or university – like the RESP has.

When your kids become adults, encourage them to open a TFSA in their own name.  This way they can start saving and investing tax-free as long and as much as possible.

  1. Save for your short-term goals

Want to buy a newer car like I did a few years ago?

Want to travel?

Want to fund some improvements to the house without going into debt?

Do it with tax-free money using your TFSA to park savings for shorter-term expenses.

  1. Fund your retirement

This is my personal favourite!

My wife and I have been diligently using the TFSA contribution room as a secondary retirement account along with our RRSP – since TFSA Day 1.

Although we’re not ready to retire yet, the TFSA is helping us get there. Contributions to the TFSA make for a great retirement account due to the types of investments you can hold inside this account.  It’s far more powerful than just a cash or high interest savings account.

What you can put in your self-directed TFSA:

  • Stocks.
  • Bonds.
  • Exchange Traded Funds (ETFs) for low cost diversification among other benefits.
  • Real Estate Investment Trusts (REITs), and by doing so, avoiding any messy tax implications.

Here are some options to consider when using the TFSA related to retirement:

  • If you have already reached your RRSP contribution limit – you may use your TFSA to top up savings! One option you can consider is making RRSP contributions throughout the year and then using the RRSP-generated tax refund to contribute to your TFSA every spring.   This way, you can grow both accounts over time!  Check out the self-directed online investing accounts you can own to do this seamlessly here. In doing so, you can take advantage of BMO’s special investing offers today!
  • If you want to retire early, you may not be eligible to receive government or workplace pensions yet (until age 55 or age 60). You can consider using your TFSA assets to bridge the gap between now and when those income payments start.
  • If you have already reached retirement age, and are drawing a government or workplace pension, consider contributing to a TFSA – so you can be more tax-efficient in retirement. For example, most of you know you can’t own an RRSP past the year you turn age 71.  (You have to convert it to a Registered Retirement Income Fund (RRIF) or payout annuity by the end of the year you turn 71, or take the RRSP money in cash (and pay tax on it)).  Regardless of your age – you can keep your TFSA open – and keep contributing to it.  Take some monies withdrawn from your RRSP or RRIF each year and put that money to work tax-free inside your TFSA.  This means you are converting tax-deferred money into tax-free money!

Take advantage of BMO’s special investing offers thanks to my promo codes!

BMO InvestorLine TFSA

  1. Save for future costs

Who knows what the future holds.  This means beyond a general savings account a TFSA can be a great way to invest (and grow) money tax-free for future needs.  Say you have aging parents.  If you’re not sure about their long-term healthcare costs, you can use your TFSA — or give your parents money to contribute to their TFSAs – to help cover future expenses.

  1. Save for your own rainy day

Bad things unfortunately happen to people from time to time.  This means if you lose your job, your family income is compromised, or home emergency repairs are needed – TFSA assets can help you and your family overcomes any rainy day disaster with money already in the bank.

In closing, options abound when it comes to the TFSA for Canadians – these are just some of the many great things you can do with your TFSA in any year. No better time than the present!

Learn about this account and investing in more detail thanks to my partnership with BMO.

Take advantage of BMO’s special investing offers today and make sure you use my promo codes with My Own Advisor’s special offer when opening your BMO InvestorLine account.  

Full disclosure: has a referral program in place with BMO and may receive compensation for individuals opening an account. 

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

41 Responses to "Great things you can do with your TFSA"

  1. Great article Mark,
    RRSP vs TFSA lots of online articles but in your opinion for someone who can’t max both of them on a yearly basis what would you think is best to max out first ? I read a lot about the yearly income determines which one an individual should choose but is there such a table or calculator that could help you to make the right choice ? part of me don’t want to over contribute to rrsp knowing that income will be taxed in retirement and if i keep both rental properties i know for sure my total income will be high , i thought about asking an accountant or perhaps a financial advisor . so yeah like to hear what you think about it .

  2. I have a different way of handling the compounding issue. In January I make the maximum contribution—purchase securities—remove left over cash. I then periodically make withdrawals during the year. In January the following year I make the maximum contribution plus accumulated withdrawals—make my purchases and repeat.

    The cash that the TFSA generates is put to work (compounding) in my non-registered account rather than sitting idle in the TFSA.

    1. “The cash that the TFSA generates is put to work (compounding) in my non-registered account rather than sitting idle in the TFSA.”

      I think that’s smart. I put my cash to work inside the TFSA every year via investing vs. cash.

      Happy investing John!

      1. I guess I didn’t explain my situation properly. My TFSA room is maxed out. It generates $308 a month. I can’t buy anything for $308, so I withdraw it to my non-registered account to pay down my margin. So you see overall I maintain a $0 cash position. (no idle cash). (You may question my use of margin, but that is a different discussion.)

        1. I now understand John. My question would be, why not keep your $308 (per month) inside your TFSA, so when you add in 2020 TFSA room, you have potentially $6,000 + $308 and then some, to invest in new assets?

          Yes, margin investing is a different discussion and animal. Do you need to do that? Leveraged investing?

  3. I have decided to stop reinvesting my dividends in my non registered account and take my cash and transfer it into my TFSA and reinvest it there. Do you see any issue with that.

    1. Nope, no issue here. We’re all different and nothing wrong with taking dividends as cash and being strategic with that income. All the best!

  4. Mark: Is there a post about what others did to get to where they are today? Maybe a post on what worked for them and what did not? and what they have invested in or hold today? What others are doing to prepare for the next correction, etc. Maybe a post that allows others to tell their journey or story?

      1. Yes, That link is helpful. Thank-You!. For me – I have the knack of making money. Its very hard for me to explain – but its like a system in my brain that just knows how to make money. But – once I get the $$$$ – sometimes I run out of areas / ideas to park it or where to put it to good use. (at the moment – i have exhausted all the usual stocks / holdings). I also like keeping some of my $$$ moving at all times to avoid hits. But when in doubt – I do nothing – and this goes against who I am and what has worked for me in the past. The joy for me is being able to take risks and having it work out. Not really with stocks – because I can’t control them. But with basically anything-else. I know its a good problem to have – as money does create time but it also creates other issues for me. Don’t get me wrong – I don’t feel like I have enough $$$ yet to feel secure. (for some reason its an insecurity). Thanks again for listening to me babble. Feels good to let some stuff out! Thanks for doing what you do and one day, I might write in my story – and if I do – most of you would not believe the odds I over came or understand why I keep going.

  5. Lloyd: ” I used to just go with the net worth of the portfolio.”
    As were we until I discovered Income Growth investing. Watching daily prices, looking to sell if the stocks went up, then trying to buy something else and repeat. Which never generated any real income or net worth. Once we switched all that changed and over time we were able to retire with more income than we needed. Others may have gotten there with other strategies, but we stopped checking prices and only recorded the market value at yearend, just as a matter of interest. Market value or even Total Return has little no meaning to us other than a paper figure.

      1. Just a side note. Just in the past month the market value of our TFSA has dropped by $2,000 in each account, but who should care. If one considers their TFSA as a long term investment they should ignore the price up’s and down. If one invests for the income, I’d only be concerned if the income generated by the funds dropped, which it has not in our case.

        1. Good point. My concerns about a capital loss in a TFSA are from a 72 year old’s perspective. There is the risk that a loss may never be recouped or claimed against capital gains. Using your $2,000 example I would have already paid tax of $300 (@15%). But as you say, over the long term it wouldn’t make any difference.

          1. John: 76 and decided long ago to stick with solid DG stocks in all our accounts. Doesn’t eliminate the chances of losses but certainly minimizes them. All stocks will drop on a correction, but as long as the Income continues or grows the price will recover.

        2. If I worried about the daily up and downs in our portfolio, I would be a mess. Our TFSAs have dropped almost $2,500 year to date, each. Am I worried? Heck no. I know with lower stock prices I will DRIP the following stocks, at cheaper prices, and those stocks will pay more dividends next month and quarter:

          Bank of Montreal (BMO)
          Bell Canada (BCE) x2
          Capital Power (CPX)
          Enbridge (ENB)
          Fortis (FTS)
          H&R REIT (HR.UN)
          Smart REIT (SRU.UN)
          Innergex Energy (INE)
          InterPipeline (IPL)
          Laurentian Bank (LB)
          National Bank (NA)
          Power Financial (PWF)
          Telus (T) x2

          If the dividends are cut or reduced, then I get concerned but until then the income month after month and year after year keeps growing.

  6. Lloyd: In our worksheet summary we show the Original Shares bought (Initial purchases and any additions), the Dividend reinvested shares and Total shares. We do this for all our holdings and calculate our Average Cost or ACB. I know its not needed for the TFSA & RRIF, but it doesn’t take any additional work and I like to see how many shares we get from our reinvestments.

    1. Okay. It never occurred to me to show growth by number of shares. If a person said they had two shares of growth it wouldn’t sound all that impressive unless they added that it was BRK.

      I have my spreadsheet calculate how much income the DRIPped shares generate on an annual basis, but I don’t count the total number of shares I get. It wasn’t until I started reading MOA that I even kept track of the income that was generated. I used to just go with the net worth of the portfolio.

  7. I might be missing something but what is point of counting the added shares? Dollars I get, but if a stock/fund has a high price as opposed to a low price, you’re going to get less shares for the same dollar dividend.

  8. Missed the Reinvestment of dividends. With our accounts we added 210.3692 shares in mine and 282.6727 in my wifes. I love the Full Dividend reinvestment as those fraction of shares do add up. Clearly she picks better stocks than I did. In addition mine generate $4,380.76 in dividends and hers 4713.35.

    1. Hey Cannew: Knowing you only hold 13 stocks (blue chip) – How did you get to $4700 in divs in the one TFSA? I just can’s see how you did it with those types of stocks. With the max contribution being $57,500 – you would need to have doubled your $57,500 original investment to $115K x 4% = $4600 divs.

      1. Mike: I hold 4 stocks in my TFSA and my wife 5. The dividends are just from reinvesting and increases since inception. As an example, the 1st stock I bought in 2009 was BNS and I added the max to it for the next 4 yrs ($25,500). BNS is now generating $2.179 alone and returning me 6.04% on my invested dollars (includes the reinvestment of dividends). I don’t care what it returns on today’s price. That’s the power of Compounding and Rising dividends.
        I keep telling people to stop looking at what the yield of a stock is today and projecting it into the future, but few understand the concept of investing over time and compounding.

        1. Compounding is magical for sure. That’s a good chunk of BNS dividend income. I own enough BNS to DRIP inside the TFSA for x1 share. Hopefully adding to BNS more in the years to come.

        2. Cannew: Very interesting and thank-you for sharing. With the TFSA’s I took a different route than you. I planned (in 2009) to only put in “growth” stocks – and each year after – continue to only focus on building the $$$ value of our plans. (not worried about collecting any divs – just yet). Because I have enough $$ in a non reg account (collecting divs) – I decided to be a little risky with the stocks I placed in the TFSAs. (looking for growth). Only recently have I sold off the growth stocks and reinvested in Div payers. Here is what ours looks like today (rounded). Mine: value $130K – $5975 Divs. Wife: value $145K – $6550 Divs. *We took two different paths that worked well for us both. But will add – that your way probably was less risky than mine and easier on the nerves.

    1. I like both CDN dividend paying stocks inside the TFSA myself, that’s my bias (not a recommendation) and for those not into that, some low-cost Exchange Traded Funds. With my BMO partnership, you can save a few hundred bucks with them – opening a self-directed TFSA.

      Back to you – what are your saving and investing goals? I think once you define that you’ll know better what to invest in. Plans come before products.

      Ask more questions, happy to try and answer where I can.

      1. One way I found to hold US equities inside your TFSA and not concern yourself with the withholding tax is to hold non dividend paying US stocks such as Berkshire Hathaway B shares. Yes, you can have your cake and eat it

  9. “When your kids become adults, encourage them to open a TFSA in their own name. ”

    It may be difficult to convince some kids to invest in their own TFSA at eighteen. A strategy I used is to offer to match any deposits made in their TFSAs with the stipulation that the matched funds are to be left there for the longer term.

    I absolutely love the TFSA program. I’m sure they may be a downside but I can’t think of any.

    1. Fair point Lloyd. I was lucky – my parents knew of the RRSP and encouraged me to open one up after I get my first job. It certainly takes a lot less money invested at age 20 or 25, to build wealth, than it does at age 35 or 40.

    2. It’s great that gains inside a TFSA are tax free. The downside is that losses are fully taxed. You can reduce the possibility of losses by investing in “risk free” or low risk investments, but then your return is reduced, thus lowering taxes saved.

      1. “The downside is that losses are fully taxed.”

        There is that. I don’t usually sell much so capital losses never occurred to me. Classic example of a myopic view on my part.


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