Use Non-Registered Investments Before TFSAs as a Retirement Fund Strategy

by Beth Rifkin

1 min read

The right strategy as you save for retirement can save you a substantial amount in taxes when you decide to withdraw your money. One of the best tax-shielding options is a tax-free savings account (TFSA). You pay the taxes when you make your contributions to the account, which means withdrawals are tax free regardless of how much you’ve earned. You can keep your money in a TFSA for as long as you want, as you’re never forced to remove it. Since you don’t pay taxes on earnings with a TFSA, it makes sense to sell your non-registered investments first. You need to pay taxes on any return you have with a non-registered investment, so as you earn money, you’re also increasing your tax bill later. It may not seem like a big deal now, but it’s years or decades later when your investment has been earning compound interest and is significantly larger than when you started. Just consider the difference between paying and not paying tax on $20,000 in income.The smart way to go about this is selling your non-registered investments to fund your TFSA up to the maximum contribution amount every year, which Canada Revenue Agency (CRA) sets. Just make sure that you don’t increase your income enough to put yourself in a higher tax bracket for the year.Putting as much of your money as possible in a TFSA is the way to go to minimize the amount you pay in taxes on your retirement fund. Tap into your non-registered investments first to reap the benefits of a TFSA, including tax shielding and flexibility regarding when you withdraw your money.

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