What Should You Do With Your Tax Free Savings Account?

The Tax Free Savings Account is a government program that allows your investments to grow tax free. There is also no tax owed when you withdraw money from your TFSA. With a new year, we now have another $5,000 in contribution room for our Tax Free Savings Account. So what should you do with your TFSA? Lets look at some options.

Use Your Tax Free Savings Account As An Emergency Fund

If you don’t already have an emergency fund, you should consider starting one right away. A TFSA can be a great way to accomplish this since the money is normally easy to get when needed and your savings will grow tax free.

Save Up For Annual Expenses With Your TFSA

Maybe you have large annual expenses like property tax or insurance? Maybe you just want to start saving towards next Christmas? Contribute to your Tax Free Savings Account each month so that you’re prepared for when these bills are due.

We have set up an ING Direct TFSA in my wife’s name to use as both an emergency fund and to save up for our large annual expenses. If you sign up for a new ING Direct TFSA, you can get $25 for free by entering Orange Key 35090351S1.

Your Tax Free Savings Account Can Shield Your Investments From Taxes

Another option it to put some of you investments into the TFSA. A Tax Free Savings Account works especially well if you want to withdraw a tax free income from income trusts and REITs. Income trusts can have various types of distributions, some of them not very tax efficient.

I set up my TFSA with Questrade and invest in REITs and a couple oil income trusts. You can sign up for a Questrade account and get a free $50 in trades with this Questrade promo code.

What do you use your TFSA for? Do you have different plans for this year’s contribution room?

Written by Tom Drake

Tom Drake is the owner and head writer of Canadian Finance Blog. While you’re here, consider signing up for the RSS feed or email subscription. Both deliver the latest articles directly to you everyday! Have a Twitter account? Then follow me for all the latest posts or to send me any comments or questions!

16 Responses to What Should You Do With Your Tax Free Savings Account?

  1. Echo says:

    I look at my TFSA as part of a long term savings vehicle for retirement (tax free income at retirement) and have invested in dividend paying stocks and a REIT so far. Not sure what I will purchase this year but I’m think I will top up my position in the REIT and then add another dividend payer.

  2. I also use my TFSA as a complement to my RRSP. Income generated from dividends can have a different tax benefits over RRSP at retirement depending on your tax rate.

  3. Nice post Tom! I use my TFSA to compliment my RRSP. I put all my U.S. dividend payers in my RRSP, I will be putting more Canadian dividend payers in my TFSA.

  4. david says:

    I opened a brokerage account with my TFSA. I’ve grown it to over 30K. It trades like an RSP – you can’t sell short, and you can buy options, but not write uncovered positions.

    • Joe Wasylyk says:

      I notice that the Banks and other financial institutions don’t mention what it will cost in service charges, fees, commissions, etc. to manage their TFSA account over the life of this financial instrument.

      Please advise.

      Thanks.

  5. _Tax Free Savings Account: What Should You Do With
    Your TFSA?_ was a pretty awesome posting, . I hope you keep composing and I’m going to keep reading through! Thanks a lot -Hannah

  6. CU Marketing says:

    I learned it from my father, he use to contribute to his Tax Free Savings Account each month so that we never face any difficulties at the time of paying bills.

    Great thought,thanks for reminding.

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