By Scott Ronalds

If you don’t have a Tax-Free Savings Account (TFSA) yet, get on it. It’s a rare government sponsored plan that encourages the sheltering of investment income and gains from tax. For a primer on these savings vehicles, check out a blog we posted at the time of their introduction.

TFSAs were established in 2009, which means that you now have $15,000 in contribution room (three years’ worth) if you haven’t yet opened an account.

There has been considerable debate in financial circles about whether it’s more advantageous to contribute to an RRSP or a TFSA when saving for retirement. If you have a low income, the TFSA may be the route to go; whereas higher income earners may benefit more from the upfront tax deduction afforded by RRSPs. In my opinion, investors should contribute to both types of plans, if possible.

As for my strategy, I’ve sold some of my non-registered investments and invested the proceeds in my Steadyhand TFSA. I triggered a small capital gain in the process, but the future tax-free growth will more than offset the small tax liability.

All of my TFSA contributions have gone into our Small-Cap Equity Fund. I look at all my accounts (RRSP, TFSA and Investment Account) on a consolidated basis when reviewing my asset mix, and have modified my RRSP contributions to keep my overall mix in check.

While I own all three of our equity funds, the Small-Cap Fund will likely produce the greatest capital gains over time, which is why I’m holding it in my TFSA. This strategy makes sense for me because I don’t intend to tap into my account in the short-term. The other fund that would be a good candidate for the plan is our Income Fund, as it generates a stable stream of income that would be sheltered from tax, but I hold a smaller proportion of this fund in my RRSP.

This strategy may not be suitable for everyone, but it works well for my situation. If you’re grappling with a strategy of your own, give us a call. We’re happy to be a sounding board.