The following article was written by Isaac Veeneman, CFP®, BBA, Associate Financial Planner at Coast Capital Savings.
The Tax-Free Savings Account (TFSA) is a flexible savings tool that can offer meaningful advantages for many Canadians. It allows you to grow, save, and withdraw money tax-free, making it a standout option for building and preserving wealth. Since its introduction in 2009, the TFSA has become one of the most versatile and valuable savings plans available to Canadians. While many people are aware of the TFSA’s basic benefits, such as tax-free growth and withdrawals, its true potential often goes underappreciated. The TFSA’s flexibility makes it a valuable part of any financial plan, no matter your income level or savings goals. This combination of versatility and tax-free growth creates several valuable financial planning opportunities, and I’ll discuss three of my favorites .
If you’re new to TFSAs or need a refresher on the basics, I recommend starting with the following article: All about TFSAs and when they’re worth it | The Blog
1) Creating tax-free retirement income (for high or low income retirees)
As of January 2026, the lifetime contribution limit for the TFSA is $109,000 assuming you were over 18 when the account was introduced in 2009. If you turned 18 after 2009, your contribution limit will be lower based on the year you became eligible. The full list of annual contribution limits can be found here: Contributing to a TFSA – Canada.ca. Investors should be careful to track their personal TFSA contribution room, as contributing more than allowed can result in CRA penalties.
If you had contributed the maximum amount each year since 2009 and earned an average annual return of 5%, your TFSA would now be worth an estimated $166,664[1] as of completing your most recent contribution of $7,000 on January 1st, 2026.
Assuming no further contributions and a continued 5% growth rate, you could $1,000 per month, tax-free, for the next 23 years (282 months). For retirees, this income can serve as a critical supplement to taxable sources such as CPP, OAS, employer pensions, and registered account withdrawals.
The tax-free nature of TFSA withdrawals is even more beneficial if you are nearing the claw back thresholds of income-tested government plans. There are two common scenarios where this may occur:
- For high earners, each dollar of taxable income above $93,954 (in 2025) will result in a 15-cent reduction of OAS benefits between July 2026 and June 2027 (Old Age Security pension recovery tax – Canada.ca)
- For a single low-income pensioner, Guaranteed Income Supplement (GIS) is reduced to zero at annual income of $22,488 or above earned in the 2025 tax year.
Using your TFSA to create tax-free retirement income is an effective strategy to maximize government benefits while meeting your financial needs.
2) Using the TFSA for long-term growth investments (even during retirement)
Unlike other registered plans, the TFSA does not have a set age or time limit when it must be closed (like registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), locked-in retirement accounts (LIRAs), etc.), nor are you ever forced to take minimum payments like RRIFs or LIFs. This flexibility allows your TFSA to continue growing through investment returns and new annual contributions, providing a valuable source of long-term tax-free savings.
For most Canadians, retirement is a marathon, not a sprint; you need your money to last at least two or three decades. You need to plan for expenses both now, and far in the future. While it is generally true that investors become more conservative and risk-averse as they age, many will still choose to have a (small) portion of their portfolio invested in risky assets, focused on real growth potential to pay for those later-in-life expenses. For investors looking to position part of their portfolio for long‑term growth, the TFSA may be an excellent option to consider.
Imagine a retired couple, both 65, who have $500,000 in RRSPs between them and $50,000 in each of their TFSAs ($100,000 total). They expect to withdraw $2,000 per month from their RRSPs (which will convert to RRIFs at age) to supplement their pensions, CPP and OAS. While they currently don’t need to use their TFSAs, they want to keep these funds invested for potential medical or long-term care expenses in their later years.
They decide to invest their TFSAs in a growth-focused portfolio with an average annual rate of return of 6%. Over the next 15 years, the combined value of their TFSAs could grow to approximately $239,656[1] by the time they turn 80, assuming no withdrawals during that time. These funds, which can be withdrawn tax-free, could provide a crucial source of income for unexpected expenses.
By using their TFSAs for long-term growth and keeping the funds invested, the couple preserves flexibility and peace of mind for future needs while their RRSPs handle their more immediate retirement income requirements.
This example is for general illustrative purposes only and is based on several assumptions. (1) investments earn a consistent 6% average annual rate of return after fees, (2) returns are compounded annually, and (3) contributions are made at the start of each period using a 52-week year. Actual returns, contribution timing, feed and other factors may vary significantly. Past performance is not indicative of future results. Please consult a financial advisor to tailor strategies to your specific circumstances.
3) Using the TFSA as a legacy builder as part of the estate plan
For many Canadians, leaving a financial legacy for family or charitable causes is an important goal. The TFSA’s tax-free nature and flexibility make it an ideal tool for this purpose.
One key advantage of the TFSA is the ability to name beneficiaries directly on the account. You can name multiple beneficiaries on a plan and even include contingent beneficiaries in case the primary beneficiaries predecease you. In the event of your passing, your TFSA will be paid out to the beneficiaries tax-free*, and often in a matter of weeks (as opposed to months or years, when waiting for probate). These funds will bypass your estate and are not subject to probate. Although beneficiary designations can be challenged in some circumstances, they are generally more difficult to contest than a will
Let’s use the example of the couple before; assume that they both live healthy lives and do not end up needing as much money for healthcare as they projected. They pass away in their mid-80s, with the second spouse owning nothing except $239,656 in their TFSA, and their principal residence. The couples’ four children are named equal beneficiaries on the TFSA. Upon receiving the death certificate and payout instructions, the financial institution holding the TFSA issues a cheque for almost $60,000 to each beneficiary shortly after receiving notice, and the funds are received by each beneficiary tax-free*.
While we don’t know when we’re going to pass away, a well-constructed financial plan will identify a potential surplus or shortfall in your expected retirement assets. If a surplus has been identified with a prudent margin of safety, it is reasonable to assume that some of your money is going to be left behind as part of your legacy, and the TFSA should be seriously considered as the vehicle to bring that to fruition.
*A quick note – any growth that occurs on the balance between date-of-death and date of payout taxable to the beneficiary. In many cases, this will be negligible assuming the assets are moved to cash at time of the holder’s passing.
[1] This example is for general illustrative purposes only and is based on several assumptions. (1) investments earn a consistent 6% average annual rate of return after fees, (2) returns are compounded annually, and (3) contributions are made at the start of each period using a 52-week year. Actual returns, contribution timing, feed and other factors may vary significantly. Past performance is not indicative of future results. Please consult a financial advisor to tailor strategies to your specific circumstances.
The stuff we have to say.
This article is provided for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, fees, and other investment factors are subject to change without notice and Cost Capital Savings Federal Credit Union is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and Coast Capital Savings Federal Credit Union does not guarantee accuracy or reliability of such sources. Readers should consult their own professional advisor for specific financial, investment, and tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
