My advice • August 31, 2021
modified on February 07, 2024
TFSA Myths & Truths
Separating fact from fiction.
We often hear statements about TFSAs such as "A TFSA is only interesting for short-term projects," "A TFSA is less advantageous than an RRSP" and "I can withdraw money from a TFSA at any time." Some of these statements are true, some are false, and some need to be qualified, as their accuracy will vary depending on the individual's situation. Here are some answers to frequently heard statements to help you see things more clearly:
A TFSA is only useful for building an emergency fund or preparing for short-term projects.
FALSE. The TFSA is an investment vehicle for both short/medium term projects and to supplement retirement savings. It is often associated with a short-term project because it allows you to make withdrawals freely without paying taxes on the amounts withdrawn. However, you can also use it to supplement your retirement savings. Even after your 71st birthday, which is the maximum date for converting your RRSP into an RRIF, the TFSA is still interesting because there is no age limit for contributing to it.
A TFSA is less advantageous than an RRSP.
- Saving in your TFSA may be a good option if, for example, you are a young professional who expects to see an increase in income in the next few years.
- If your income is currently high, it may be more advantageous to contribute to an RRSP in order to pay less tax.
Depending on your situation, you can optimize your savings through these two plans. Talk to your advisor, who will be able to guide you in order to invest wisely.
I can't contribute to a TFSA if I'm not working.
FALSE. You only need to be a Canadian resident 18 years of age or older with a valid Social Insurance Number (SIN) to contribute to a TFSA.
If I contribute to a TFSA, I can't contribute to an RRSP.
FALSE. You can contribute to both an RRSP and a TFSA and still meet the contribution limits for both investment vehicles. The TFSA and RRSP are complementary savings tools.
I have a contribution limit for my TFSA.
- $5,000 per year for the years 2009 to 2012
- $5,500 per year for the years 2013 and 2014
- $10,000 for the year 2015
- $5,500 per year for the years 2016 to 2018
- $6,000 per year for the years 2019 to 2021
I can hold more than one type of investment within my TFSA.
TRUE. The TFSA is an investment vehicle that can hold different types of products such as Guaranteed Investment Certificates (GICs), mutual funds or stocks and bonds as long as they are eligible investments.
If I withdraw money from my TFSA, I lose my contribution room.
FALSE. Withdrawals made in one calendar year will be added to your contribution limit for the following year. For example, if you withdrew $2,000 from your TFSA in 2021, you will be able to contribute that $2,000 plus the rest of your unused contribution room as of January 1, 2022. In addition, you don't pay tax on your withdrawals because they are not considered taxable income.
My TFSA will end on December 31 of the year I turn 71.
FALSE. Unlike an RRSP, you can keep your TFSA even after age 71 and continue contributing to it while respecting the contribution limit. What's more, withdrawals from your TFSA and the returns generated have no impact on your eligibility for government benefits such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS). It can make a real difference if your retirement income is based primarily on these programs.
Since the choice of your investment strategy depends on your situation and your financial goals, feel free to contact your advisor to help you evaluate your portfolio and the type of investments that might be right for you.
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+ Legal Notices
Laurentian Bank: Laurentian Bank of Canada.
LBCFS: LBC Financial Services Inc.
Mackenzie Investments: Mackenzie Financial Corporation.
TFSA: Tax-Free Savings Account.
RRSP: Registered Retirement Savings Plan.
RRIF: Registered Retirement Income Fund.
SIN: Social Insurance Number.
GIC: Guaranteed Investment Certificate.
OAS: Old Age Security.
GIS: Guaranteed Income Supplement.
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