How to Maximize Your TFSA Benefits for Canadian Retirees

Most Canadians open a TFSA at the bank, leave it in cash and wonder why it isn’t growing. In this episode two certified financial planners break down how to use a TFSA in retirement: what a TFSA actually is, why it’s a shelter and not an investment, what you can hold inside it beyond cash, the contribution room mistakes that lead to CRA interest, and how to name a successor holder or beneficiary the right way. If you want your tax-free savings account working as one of your best long-term retirement buckets, start here.

Show Notes: How to Maximize TFSA Benefits In Retirement

Nicole Hey, it’s Zena and Nicole from Astra Financial, and today on the podcast we’re going to talk all about TFSA basics: what it is, who needs to be using one, and if you’re in retirement, this is probably one of your best and most strategy-wise buckets to use.

Zena: I’m Zena, this is Nicole, and we’re certified financial planners here at Astra Financial. Our specialty is getting you ready for retirement and also making sure that your money lasts your lifetime.

Nicole: All right. So, TFSA. What does a TFSA stand for first?

Zena: Yeah. Tax-free savings account. It is my favorite bucket of all. I think it started in 2008 or 2009, and it was because the government realized that Canadians are not saving enough money. It was post the financial crisis of 2008. How do we incentivize these people to start saving? And it is fantastic. So, tax-free savings account. It is a bucket that you can put money inside of, and the government is not going to tax you on it. The government’s not going to tax you on any of the growth. You don’t have to claim it as income at any time, and it adds up in room, similar to an RSP. So you can keep using this room that you haven’t used in the past. There’s a few rules in there, but this one is one that we love to talk about a little bit.

It’s a shelter, not an investment (what you can hold)

Nicole: When you talk about a bucket, there is a misconception out there. I’m going to give you a phrase I’ve heard from clients before, and I know it’ll twig you off right away. They say, “My TFSA isn’t growing.” And so we’re going to break this out for you. When we say bucket, it truly is a shelter. It’s not an investment. So can you speak a little bit about that? We say we love this bucket, but maybe talk a little bit more to what you mean by bucket.

Zena: Yeah. So just like an RSP, I’m going to call that a bucket. This one is called the tax-free savings account. You can invest and put anything you want in it. I think what the banks did years ago is they made us all think in marketing that you could only have, and I still get this today, people think that you can only have a tax-free savings account at the bank. And the only thing they offer when you go in and you’re at the teller and you say, “Let’s open up a tax-free savings account,” they say, “Okay, no problem.” They open it up. It’s a high interest savings account. And nobody realizes that you can actually invest inside this bucket, and it is a tool in building wealth.

Nicole: Right. And so when you say anything, this is like word soup behind you. I feel so bad for people, but okay. So we’re talking about the bucket. We know that it’s a shelter, that things can live inside. So what types of things? We say a high interest savings account is one type of investment. But in retirement especially, depending on how we’re using it, what things can we hold inside the TFSA?

Zena: You can hold investments, dividend paying equities. You can hold fixed income, which is bonds. You can have GICs inside of them. I’m not suggesting that this is what you should put in them, but you can put cash inside of a TFSA, which is what the banks have monopolized and made you think that all you can do. You can invest in businesses that are on the stock exchange. You can invest in funds. You can invest in GICs. What am I missing here?

Nicole: Oh my God, that’s pretty much all of it. It’s so flexible. There’s so much that you can do with it. And so, which then, as planners, makes us really happy because this gives us so many strategies we can use, especially in retirement, with this type of bucket.

The Best Ways to Use Your TFSA in Retirement

Nicole: Okay, I’m going to walk it back a little bit first. So when we’re talking about best case for retirees, how do we see the TFSA working in retirement?

Zena So I love, this is my thing, I love using the tax-free savings account as a long-term investment bucket, and there’s some reason why. It’s because of the growth. So we know that the longer time you have, the more returns, the more compounding interest and dividends and growth that you get. As it sits in there and accumulates, and it gets bigger and bigger and bigger and grows, you don’t have to pay any tax on that growth. You don’t have to pay capital gains like you would in a non-registered bucket. This is a great place to just park it and let it be that ace in your back pocket, that if something happens, an emergency, something blows up, and you have to access money, and you don’t want it to affect your taxes at all, this is the place. The other thing I love it for, for long term, is it’s also an amazing legacy to leave, an estate.

Zena If you don’t need it. So we are talking about, I love not using it for retirement income for those two things. It’s an ace in your back pocket and estate planning.

The Biggest Mistakes People Make with Their TFSAs

Nicole Right. So what are the biggest mistakes you see people making around the TFSA?

Zena You already said it. It’s not realizing that you can put different things in that bucket, and they’re at the bank. And I’m going to be really catty right now and pick on those six major banks. You go in and you speak with someone there, a teller, and they’re helping you out. You’ve got this extra money, and they’re like, “Oh, well, let’s put it into a tax-free savings account.” And you say, “Sure.” And you put it into a tax-free savings account, and you walk away. No one has sat down with you and explained what the tax-free savings account is, how it should be used, and did you know you should be investing in it? Because that would be beyond the scope of the person that opened it up for you. And you have to actually talk to someone that knows and is a certified financial planner. So the biggest mistake I see is not using it for growth and just having it as a parking spot, and then using it as a revolving door in and out. So the most common mistake I see is, “Well, I’ve got my property tax coming up, and my plates are coming up on my car, and I use this just as my savings account.”

Nicole Oh, so let’s talk about that for a minute. Because that can actually run into some issues, especially when we’re talking limits. So limits are a thing with TFSAs, and maybe we’ll touch a little on that. So talk to me a little bit about the limit. When I say limit, what does that even mean?

Zena So CRA is not going to make you pay tax on it, but they are tracking the ins and outs. And so there’s a limit. Every year it opens up a new door. It was $7,000 in 2025, and 2026 was $7,000. And it accumulates and adds up. So there is a limit. When the glass is full, CRA is going to make you pay interest if you’re over that limit. Most of us are like, “Oh, I’m not close to the limit.” The problem is that the more ins and outs you do, the more tracking you get, the more lost you’re going to get. Because if you’re ever over, whatever you take out in that year, you cannot replace until January of the next year. So if you’ve got a revolving door of all these ins and outs, you’re going to get yourself in trouble, and the interest that CRA charges. And CRA won’t let you know until a year after, because when we file our taxes, it’s going to take them a while, and then you’re going to get the interest bill that has accumulated.

Nicole They’re also a little slow on that. And so this is actually a good tip too. For those of you who do have CRA My Account, you will see a TFSA limit on there. But because CRA isn’t tracking this in real time, so to your point, Zena, if people are taking money, putting money in, taking money out all throughout the year, CRA doesn’t track that until tax time. So that number is really only right once a year.

Zena Did you know that the institutions send their feed through the computer in February? Every February of the year is when CRA gets the institutions’ information. So until before and after that, it’s not live time.

Can you have more than one TFSA?

Nicole They don’t know. Yep, perfect. So then, okay, so we know limits now, and then we have to be careful around limits. Two questions. Can you have more than one TFSA?

Zena Yeah, you can. You can have a whole bunch. Please don’t.

Nicole Tell us, tell us why.

Zena Please don’t have more than one because of the limits. The ins and outs. And I’ve seen where people don’t realize they opened up a tax-free savings account at the bank. They actually had no idea. They went in, deposited. They had a conversation, probably had other things on their mind. The person at the teller, that’s the old school word, teller. But the person at the bank that helped them said, “Oh yeah, we’ll put it in a TFSA.” You probably said, “Sure.” You didn’t even clue in because you’re thinking about something else. All of a sudden now you have another tax-free savings account, and before you know it, you’re in and out thinking it’s a savings account. And CRA comes back and bites you in the ass.

Nicole Right.

Zena So I do not recommend having more than one tax-free savings account. We are the keepers of all the ins and outs. We actually have a spreadsheet. We actually keep track. There’s a program and a system in place that if you do take out and put in, we’re making sure that it’s within the limits. So as soon as you add in second and third and fourth TFSAs, technically, yes, you can have as many tax-free savings accounts as you want. But you cannot go over that one limit in the combination of them all.

Nicole Right. And is there such a thing as a joint TFSA?

Zena No, that’s another thing that a lot of people ask. “Well, can I just put their name on it as joint?” No. Each individual has their own tax-free savings account, and you have to be 18 years old and a Canadian resident. So we do have a case where you have clients that had moved away from Canada. They’ve come back to Canada just recently. They only have the tax-free savings room based on their last two years living here in Canada. So automatically you think that they have the full room from day one. No, we have to look at when they’ve actually been living here.

TFSA Beneficiary Versus Successor

Nicole Okay. That’s also super important. So we’ve talked a little bit about why we love the TFSA, specifically in retirement. I think another really important note that we should touch on is the whole conversation around beneficiaries, because not everything is created equal here. So maybe talk to me about the difference between a beneficiary and a successor holder, and when you should be naming one over the other on a TFSA.

Zena If you have a spouse or a partner, successor holder is what you want to check your tax-free savings account and make sure it says successor holder and it’s your spouse. And the reason being is because if one of you passes away, the other spouse can hold all of the other person’s tax-free savings account inside their tax-free savings account. Even though it’s above and beyond the limit, CRA says, you know what?

Nicole This is when the limit does not exist.

Zena And it’s lovely. So it’s called, we can do a spousal rollover into the tax-free savings account. Now, all of a sudden, you’ve got double and more room than you ever thought, but it’s okay. It’s allowed. And the beautiful thing about that is now you’re not having to take it out and pay any capital gains on it, you’re able to keep it inside of yours and use that, and shelter it from any tax consequences. So we love that piece as a successor holder. If you don’t have a spouse and/or your partner has passed away, now it’s time to say, “Okay, what should I put on my tax-free savings account for if something happens to me and I die, where does it go?” This is when you can name a beneficiary. And a beneficiary means they actually get a check or auto deposit of that amount if you pass away into their bank account. And that’s important to update that after somebody has passed away.

Nicole Right. And actually, you gave a brilliant tip when we were going over these notes, basically saying, when you’re a beneficiary, tax-free, we’ve talked a lot about this being the beauty of this bucket, that money comes out tax-free. But if someone were to pass away and you’ve been named beneficiary on that account, talk to me a little bit about there could actually be some tax from the date of death. And so how does that work?

Zena Yeah, so it means from the day that that person passed away, from that date on, the beneficiary is going to pay the tax on any of the growth. So this is the scenario. A parent has passed away. They have a tax-free savings account, and Mom has named you the beneficiary. You know that advisor. You don’t need the funds right away, until you make a plan, and you’re grieving. You let it stay in the tax-free savings account. And all of a sudden the markets have grown. You have to pay tax on the interest as a beneficiary. So if you let it sit in there for months and months and months, and the market has done great, you are going to pay a little bit of tax on that. Now, is that a huge, big deal? I don’t know. But at the end of the day, it could be a surprise. And so sometimes what we’ve done is, one of the things you can do is you can turn it into cash and let it sit there until you’re ready to deal with it, and that’s a conversation you have to have. That’s not just an automatic thing.

Nicole Definitely.

Zena And this is not me saying that everybody should do that, but there is a little tiny bit of tax there to not be too surprised with as a beneficiary if it sits for a long time before you get it sent to your own bank account.

Nicole No, it’s so important to say, because this is again where the planning piece of it is so important. So we can know all the rules, the black and white rules we’ll call them. But then sometimes when things happen like this, you’ve had actual clients where they’ve called you and there has been a TFSA left in their name. And so that’s where your expertise was able to come in and say, “Hey, listen, yes, by virtue of what a tax-free savings account is, it is tax-free when it comes out. But here’s the little caveat.”

Zena And some people are okay paying a little bit of tax because the growth has been phenomenal, and they’re willing. But it’s just about communication so that nothing surprises.

The Most Important Thing to Know About TFSAs

Nicole Yeah. Nothing comes at you that you don’t already know. I think those are the biggest things. Is there anything else you want to touch on from a retirement lens on the TFSA?

Zena I think that it’s knowing what’s in it and letting it serve its purpose. And so when we talk about risk tolerance, about are you okay with some equities moving up and down? Or are you like, “Hey, no, I don’t want much.” Each bucket that you have, so I’ll talk about if you have an RSP, if you have a non-registered account, and you have a tax-free savings account, you don’t have to have the same thing in every single bucket.

Nicole Oh, that’s important.

Zena Yes, exactly. And I actually have a bit of a rant about that, but that could be another conversation.

Nicole I was just going to say, rant away.

Zena Okay. Well, you fill out a questionnaire. And you’re at one of your favorite six institutions, big names out there. And they ask you 10 questions. They don’t know much else about you, but they ask you 10 questions, and those 10 questions say, “Oh, look, you need to be in a balanced fund.” And now every single bucket you have, your RSP, your non-registered account, your tax-free savings account, your locked-in pension, is all the exact same balanced fund. Because that’s what the paper told you, and we don’t know much else about you. That’s call it someone covering their ass. You can have different things inside that bucket. So can you imagine using that tax-free savings account, you’ve figured out what’s in all those other buckets, but now this bucket, and we talk about how you don’t need this. This is not part of your retirement income. You’re thinking longer term. This is the place that you could have something different, where maybe those other buckets don’t have something that is maybe a little bit more riskier, medium or growth long term. But this one can. So I just think it’s part of the big picture, and use it to your advantage.

Nicole Definitely. And this is very much talking about retirement too, like we are living long into our retirement years. And so this whole planning of which bucket to trigger when is a big part of the puzzle, I’ll say. And then also, to your point, if we can trigger different buckets at different times to have different tax outcomes, we can also have different stuff inside all of those buckets doing different things, like growing, for example.

Zena And having a rhyme and a reason to it. And this is why we have equities in this bucket. But I could nerd out forever about that, because I love it. And that’s what we do.

Nicole Definitely. That’s our jam.

Zena Yeah. And so just be open-minded, and I don’t think people realize you can have different things in your tax-free savings account. And let it serve its purpose for you. Not just thinking that it can be the same as everything else.

Nicole Yeah. Agreed. And don’t overcomplicate it.

Zena Right.

Nicole Don’t have 10 of them when you don’t have to. Keep it simple with the tax-free.

Zena Keep it simple.

Nicole Yep. It’ll just make your life easier and your planner’s life easier, too.

Zena Hope you enjoyed this episode on tax-free savings accounts. If you want to learn more, check out astrafinancial.ca. Also, visit our Astra University. You’ll find it on our webpage. It’s easy. We’ve got a retirement course, an online course, and it is fantastic. It gives you everything you need to know. We talk way more in depth. So make sure you subscribe, like, and check it out.

Nicole All right, thanks for tuning in, everyone, and check out our other videos.