Your future is full of long-term goals. Can a TFSA be there for you? Your future is full of long-term goals. Can a T F S A be there for you?

Consider these investment options:

Mutual funds: With literally thousands to choose from, you’re sure to find a fund to best suit your needs. If you have any uncertainty, an advisor can help highlight the specific benefits of each fund and how each can help you reach your goals. But first you’ll need to determine how much risk you’re willing to take with your investment over the long term. If you’re of the “slow and steady wins the race” mindset, you might choose more conservative mutual funds. If your risk tolerance is higher, you can explore funds that offer potentially higher growth.

Exchange Traded Funds (ETFs). An ETF is a fund that is listed and traded on a stock exchange, consisting of a basket of securities that may hold stocks, bonds or other assets such as commodities. ETFs offer potentially lower risk than individual securities. You can purchase ETFs through ETF-based mutual funds sold at your bank, or simply by holding ETFs within your TFSA.Exchange Traded Funds (E T Fs). An E T F is a fund that is listed and traded on a stock exchange, consisting of a basket of securities that may hold stocks, bonds or other assets such as commodities. E T Fs offer potentially lower risk than individual securities. You can purchase E T Fs through E T F-based mutual funds sold at your bank, or simply by holding E T Fs within your T F S A.

Guaranteed Investment Certificate (GIC): GICs offer a low-risk, guaranteed rate of return over a fixed time. Another option is market-linked GICs, where you can participate in the growth potential of the stock market with no risk to your principal investment.Guaranteed Investment Certificate (G I C): G I sees offer a low-risk, guaranteed rate of return over a fixed time. Another option is market-linked G I sees, where you can participate in the growth potential of the stock market with no risk to your principal investment.

Individual stocks: As investors look to expand their options, the opportunities for people to explore stocks is growing significantly. Again, your risk tolerance will determine your choices, as individual stocks can carry more risk than investments such as mutual funds might. So it’s wise to research the stocks you are investing in, making certain that you consider the benefits of diversification. If you’re not sure how to invest or what to invest in, you can seek the help of an advisor. Or, if you are a savvy investor, you might decide to research and purchase stocks (and other investment vehicles) through self-directed investing platforms.

Long-term advantages of having a TFSALong-term advantages of having a T F S A

Minimizing clawbacks on benefits when you retire

Here’s something else to consider: when you retire, your withdrawals from your RRSP or RRIF could potentially place you in a higher income tax bracket and may result in clawbacks of your government income-tested benefits and credits, such as the Guaranteed Income Supplement or Old Age Security. With a TFSA, your entitlement to income-tested benefits and credits won’t be affected since withdrawals from your TFSA are not included in your income for tax purposes.Here’s something else to consider: when you retire, your withdrawals from your R R S P or R R I F could potentially place you in a higher income tax bracket and may result in clawbacks of your government income-tested benefits and credits, such as the Guaranteed Income Supplement or Old Age Security. With a T F S A, your entitlement to income-tested benefits and credits won’t be affected since withdrawals from your T F S A are not included in your income for tax purposes.

Of course, an RRSP gives you an upfront tax deduction (which you don’t get with a TFSA), but remember that income tax will be payable on any amounts withdrawn from your RRSP or RRIF, usually after retirement.Of course, an R R S P gives you an upfront tax deduction (which you don’t get with a TFSA), but remember that income tax will be payable on any amounts withdrawn from your R R S P or R R I F, usually after retirement.

Ultimately, it’s all about finding an approach that best suits your goals, one that potentially sees your TFSA complementing your RRSP by working in tandem towards achieving your savings goals.Ultimately, it’s all about finding an approach that best suits your goals, one that potentially sees your T F S A complementing your R R S P by working in tandem towards achieving your savings goals.

Something to watch out for

TFSAs only have so much contribution room each yearT F S As only have so much contribution room each year

The rules regarding the ability to withdraw and re-contribute money to your TFSA are cumbersome and many individuals inadvertently run afoul of these rules. If you withdraw money from your TFSA in a year, you can recontribute it in that same year, but only if you have contribution room available. If not, you will have to wait until the next calendar year. This is because any amount contributed or re-contributed within the same year is considered a new deposit subject to the current yearly maximum contribution limit and your available contribution room. If you contribute or re-contribute an amount during the same year and exceed your available contribution room for the year, you’ll be subject to a tax each month on the amount of the over-contribution.The rules regarding the ability to withdraw and re-contribute money to your T F S A are cumbersome and many individuals inadvertently run afoul of these rules. If you withdraw money from your T F S A in a year, you can recontribute it in that same year, but only if you have contribution room available. If not, you will have to wait until the next calendar year. This is because any amount contributed or re-contributed within the same year is considered a new deposit subject to the current yearly maximum contribution limit and your available contribution room. If you contribute or re-contribute an amount during the same year and exceed your available contribution room for the year, you’ll be subject to a tax each month on the amount of the over-contribution.

Let’s look at an example. Kristina opened her TFSA in 2011 and has contributed the maximum dollar limit every year since. That gives Kristina a total of $36,500 of contributions in her TFSA account by the end of 2016. When 2017 comes, she contributes $5,500, the top dollar limit for that year. Suddenly, Kristina sees the opportunity for the trip of a lifetime, so she withdraws $3,000 to travel. Then, just as suddenly, she discovers she can’t go.Let’s look at an example. Kristina opened her T F S A in 2011 and has contributed the maximum dollar limit every year since. That gives Kristina a total of $36,500 of contributions in her T F S A account by the end of 2016. When 2017 comes, she contributes $5,500, the top dollar limit for that year. Suddenly, Kristina sees the opportunity for the trip of a lifetime, so she withdraws $3,000 to travel. Then, just as suddenly, she discovers she can’t go.

She simply can’t put that money back into her TFSA. Because she’s already maxed out her TFSA contribution for 2017, Kristina will need to wait until the beginning of 2018 to recontribute all or part of the $3,000 she withdrew (which will be added to her TFSA contribution room at the beginning of 2018). If she goes ahead and recontributes before that, she’ll have an excess amount in her TFSA. That means she’ll be charged a tax equal to 1% of the highest excess TFSA amount, for each month that excess remains in her TFSA.She simply can’t put that money back into her T F S A. Because she’s already maxed out her T F S A contribution for 2017, Kristina will need to wait until the beginning of 2018 to recontribute all or part of the $3,000 she withdrew (which will be added to her T F S A contribution room at the beginning of 2018). If she goes ahead and recontributes before that, she’ll have an excess amount in her T F S A. That means she’ll be charged a tax equal to 1% of the highest excess T F S A amount, for each month that excess remains in her T F S A.

This article has probably already given you a lot to think about. If you’d like to ask questions or know more, feel free to get in touch with a BMO investment professional at 1-800-665-7700. You can also This article has probably already given you a lot to think about. If you’d like to ask questions or know more, feel free to get in touch with a B M O investment professional at 1 8 0 0 6 6 5 7 7 0 0. You can also book an appointment. We’re here to help.