WEALTH Matters — FALL 2009

TFSA strategies

We’ve written about the Tax Free Savings Account before. Since this tax-sheltering vehicle is new for 2009, there has been a great deal written on these accounts. They often get dismissed because the amount you can contribute is only $5000 per year. But the benefits compound over time, so starting to make maximum contributions early will pay off in a big way in the future.

Your adult children are eligible for a TFSA but may not be able to make the maximum contributions. If you are planning to share your estate with them anyway, one option is to contribute to TFSA plans in their names. If you are married and have 2 adult children, you could move $20,000 per year into the tax shelter. The table below shows this scenario.


Year Ending

Start $



End $

Tax Saved This Year

Non-TFSA End$








































































Look at the results after contributions for 10 years, leaving interest to compound at 5%. Now the total TFSA balances are $264,000, you’ve saved over $27,000 in tax, and have gained the compounded interest on the tax you would otherwise have paid. You’ll be saving over $5000 in tax in the 10th year, and growing.

If you had waited 10 years to begin:

· total TFSA contribution room would only be $200,000 - $64,000 less tax shelter room

· you would have paid the tax on all your interest income along the way, having only $234,000 in your regular investments - $30,000 less than with a TFSA

By starting to fund TFSA accounts even when total balances are low, you’re $30,000 further ahead in 10 years, and have $64,000 more room in your TFSAs. So start early!

Even if you need to take withdrawals at some point, you can re-contribute the amount you withdraw, so you don’t lose the benefit of the extra room created by your compounded investment earnings.

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