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Make the TFSA a Key Part of Your Investment Strategy

2025-02-12

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• The TFSA, or Tax-Free Savings Account, is a fantastic financial tool. It’s time to pay more attention to it.

• It’s not just an ordinary savings account; it’s a tax-efficient vault that allows you to grow your savings without paying tax on the gains. We love that!

Effective Retirement Savings

The TFSA is an excellent vehicle for building your retirement nest egg. If you’ve never contributed, your contribution room is now $102,000, and you can contribute up to $7,000 in 2025. Like a slow cooker, just be patient and occasionally enjoy the aroma of your tax-free investments growing exponentially. Mmm.

Remember that the TFSA offers the freedom to invest in a variety of assets, such as stocks, bonds, mutual funds, ETFs, structured notes, etc., to build a diversified and resilient portfolio. Those more tolerant of volatility should consider including sector funds and small- and mid-cap stocks, which are known to be the most lucrative in the long term. Multiple TFSAs? Absolutely! It is permitted to have more than one TFSA, but the total amount must not exceed your personal contribution limit. You can find out your exact limits in your online account with the CRA without risking over-contributions and costly penalties. For example, you could have one TFSA for retirement and another for other projects. Whether it’s for a dream vacation, buying a cottage, or a plot of land, the TFSA allows you to save and invest for your personal goals without worrying about taxes.

The Secret to Success: Let Time Do Its Work

The magic of the TFSA lies in the power of tax-free interest compounding. By letting your investments grow within the account, year after year, you benefit from a snowball effect that can generate extraordinary long-term returns. Here’s Sylvain’s example.

Sylvain is 40 years old and has been contributing to his TFSA since its creation in 2009. As a self-employed photographer, his annual income is rather unpredictable. He therefore prefers to save with his TFSA rather than with an RRSP. This is because during lean years, he can withdraw from it without worrying about the tax deductions associated with RRSPs.

Since he started contributing, his beloved account has accumulated a value of $132,000 thanks to his consistent contributions and the growth of his investments. This year, he has committed to contributing $583 per month. If his capital and future deposits earn as much as in the past, an average of 7%, he’s in for a bright future.

At age 65, I estimate that Sylvain’s TFSA will have a market value of over $1,175,000*. This sum could then provide him with monthly payments of $7,600 NET of tax for 30 years. And that’s not counting the Quebec Pension Plan benefits or the federal Old Age Security pension.

• Sometimes when I see all these possibilities, I think that governments might one day be tempted to cap the accumulated amounts or make TFSAs less advantageous through various limitations. Let’s take advantage of it while it lasts.

*This example is a simplification and certainly not personalized advice. To find out if a TFSA is right for you as a retirement savings vehicle, consult a financial planner. Your tolerance for volatility should be reviewed before making new investment choices. Some investments may not be suitable for your profile.

• This publication was prepared by Fabien Major who is a Wealth Advisor for iA Gestion Privée de Patrimoine Inc. and does not necessarily reflect the opinion of iA Private Wealth Inc. The information contained in this text comes from sources believed to be reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation dating back to the date of publication and are subject to change without notice. Furthermore, they constitute neither an offer nor a solicitation to purchase or sell the securities mentioned. The information contained herein may not apply to all types of investors.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Regulatory Organization of Canada. iA Private Wealth is a trademark and another name under which iA Private Wealth inc. carries out its activities

This information was prepared by Fabien Major, who is an investment advisor for iA Private Wealth Inc., and does not necessarily reflect the opinion of iA Private Wealth Inc. The information in this text comes from sources believed to be reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation as of the date of publication and may change without notice. Furthermore, they do not constitute an offer or a solicitation to buy or sell the securities mentioned. The information contained in this document may not apply to all types of investors. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a trade name under which iA Private Wealth Inc. carries on business.

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*Financial planning services are offered through Isabelle Bérard, Yves Razafindrazaka, Fabien Major - independent representatives, and Jonathan B. Therrien - Majoré Gestion privée inc. Only the products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund.
**Insurance products are offered through Fabien Major, Isabelle Bérard, Yacob Nour, Yves Razafindrazaka, Simon-Pierre Côté, Senthuran Selvarasa – Independent Representatives, Frédérique Poirier, Jonathan B. Therrien - Majoré Gestion privée inc., and Jean-François Gosselin – Services financiers Gosselin Inc. Only the products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund.