How to Maximize TFSA Contributions
In your projections, TFSA contributions may be automatically maximized if there is a surplus of cash and automatic cash flow management is enabled. To ensure the maximum contribution to a TFSA account each year you can use a contribution override. Enter an amount larger than the available contribution room and run the scenario. Snap will correct the contribution amount to the maximum allowable for that year.
The TFSA annual contribution limit is indexed to the inflation rate specified in your scenario and rounded to the nearest $500.
In this article:
Override the TFSA contribution
On the Planning page, click the value in the TFSA Contribution (Withdrawal) column in the first year you wish to maximize contributions. Enter an amount larger than the government-specified maximum contribution such as $25,000. Check the box to Copy down until age XX, enter the desired age, and click the large blue checkmark.
Run the scenario. Snap will correct the $25,000 contribution to the maximum allowed contribution for each year and your overrides will be highlighted in yellow. The rest of the cash flow will be allocated according to the default CFM logic.
If you have increased your client's TFSA contribution room, the above method will show larger TFSA contributions. For example, if the client's unused TFSA contribution room is $35,000 and a $25,000 contribution is copied down, the first year will allow the entire $25,000 contribution. In the second year, the contribution is the remaining $10,000 of room plus $7,000 of room for the new year.
Example: TFSA maximum contributions in the years of asset decumulation
In retirement, Snap Projections will not automatically withdraw more funds from the Non-Registered account to contribute to the TFSA, but you can do this manually using overrides. This example assumes that Snap follows the default order of withdrawals: Non-registered, TFSA, Registered (N, T, R).
Snap will withdraw more from the non-registered account to cover the TFSA contribution.
You may wish to clear the overrides once the non-registered account is depleted (see the year with the outline). Otherwise, Snap will continue contributing to the TFSA by withdrawing more from the RRSP.
Beware of years where the TFSA is the only remaining Financial Asset with a value. Snap will borrow to continue contributing to the TFSA instead of withdrawing money from the TFSA when an override exists. Clear the override to allow Snap to withdraw money from the account.
In summary, you can contribute to the TFSA from the non-registered account using overrides until the non-registered account is depleted. After that year, withdrawals from the TFSA will supplement the minimum RRIF withdrawals.
Notes:
1) The contribution override values will not be automatically updated if you change the inflation rate. You need to repeat the above steps after changing the inflation rate. Similarly, if you change the client's TFSA Contribution room, you will need to repeat the above steps.
2) The same procedure can be used to maximize withdrawals from a LIF. Enter a large negative value under the Contribution column for the LIF, and after running the scenario the software will correct the amount entered to the projected maximum withdrawal.