How to keep your TFSA aligned with your goals

This year, you can contribute $6,000 to your Tax-Free Savings Account (TFSA), bringing the cumulative total of allowable TFSA contributions to $63,500, or $127,000 between a couple. This means that a TFSA can help meet any investment objective.

The investment factor you can control

You can’t control the direction of the markets or the return on your investments, but you have complete control over the amount you save and invest. And the amount you regularly invest may be the difference in meeting your financial objectives or not. Here’s a look at some life situations that typically call for investing more.

Stay on track

When investors with a lower risk tolerance have a conservative portfolio with lower potential returns, they must regularly contribute larger amounts compared to more aggressive investors with similar financial objectives and time horizons. Also, investors of any natural risk tolerance typically make their portfolios more conservative in the years approaching retirement. As this adjustment reduces growth expectations, investors may need to increase contribution amounts to keep their portfolios aligned with their investment objectives.

Are RRSPs still the best choice?

In retirement, there’s a tax-saving strategy called “topping up to bracket.” It’s used when funds in a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF) will eventually be withdrawn when you’re in a higher tax bracket. The idea is to withdraw funds from your RRSP or RRIF in an amount that takes you to the upper limit of the marginal tax bracket you are in currently. You don’t actually need this money to support your retirement lifestyle – you invest the funds in a Tax-Free Savings Account (TFSA) or non-registered account. However, by making the withdrawals now at a lower tax rate, you save tax in the long run.

RRSPs for owners of a business

If you want to make tax-deferred investments in an RRSP, you would draw a salary from your corporation to gain earned income that creates RRSP contribution room. Or you can save for retirement, also on a tax-deferred basis, by leaving excess funds in an investment portfolio within the corporation – eventually to be withdrawn as dividends. Each option has its advocates and advantages, so it’s a decision to make with your advisor, tax expert or accountant.

When life changes, so do financial plans

Life is what happens to you while you’re making other plans, the saying goes. We just never know when the unexpected may happen. Here are four scenarios that look at various life changes and how financial plans adapt to evolving needs.

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