Q. I am 68 years old and already retired. Is there any point in contributing to a TFSA?
A. Any point? Why yes. There are lots and lots of points. I’ll make a few of them here.
The Tax-Free Savings Account is a great vehicle to reduce your taxes whatever your age. You’re already retired, so you’re not saving for that phase of your life. But you may have assets that could benefit from the tax shelter that the TFSA provides.
Money that you withdraw from an RRSP or a RRIF is taxed as income. But TFSA contributions are made with after-tax income, so you don’t pay a second time when you pull the money out. This means that whatever you draw from the TFSA will not impact “income-tested” benefits like Old Age Security or the Guaranteed Income Supplement.
Remember, too, that you can’t contribute to an RRSP after age 71 and you’ll have to start withdrawing money from your RRIF, according to the amounts the government mandates. If you don’t spend all of that money, a TFSA can be a good place to put it, so it can grow tax-free for as long as you live.
If you have money in a non-registered investment account, it might be better to keep it in a TFSA instead so you don’t have to pay tax on the gains. Now, depending on how much you want to transfer over, you may not be able to do it all at once—the cumulative contribution limit for a TFSA is $57,500 and is currently growing by $5,500 per year.
Two other things to think about: First is the estate planning benefit of a TFSA. Assets in that account can pass tax-free to your heirs, which isn’t the way it works if your money was in a non-registered account. And second, if you’re holding onto some money for emergencies, a TFSA might be a good place to store it.
At age 68, you might not want to crowd surf over the mosh pit at a Metallica concert. But you might want to summit Mount Kilimanjaro. And you might want to open up a TFSA.
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