Can you save money for your wedding using a TFSA?
The modern practice of long engagements could be a blessing because it gives couples more time to save money for a wedding using a TFSA, or a tax-free savings account.
Costs of modern weddings
With the rise in popularity of destination weddings and other expensive options, costs have been rising steeply since the early 2000s. Weddings cost around $15,000 for a catered, but otherwise simple, event. This can stretch to $50,000 and more for couples determined to arrive in a stretch limo. Also, families often pressure couples into inviting a large number of people. Keep in mind that we haven’t even factored in the cost of the honeymoon. Parents are increasingly objecting to such prices, so couples are choosing to stand the cost themselves.
How to afford a wedding
Millennials are a practical generation. As divorce statistics remain high, younger couples are devoting more time getting to know each other before committing to marriage. With longer engagements, couples have more time to save up for the wedding using a tax-free savings account (TFSA).
At present, the maximum you can contribute to a TFSA is $5,500 per annum. It’s a solid way to save since you don’t pay any taxes on investment returns or interest income.
If the bride and groom can put the annual maximum in a TFSA, within three years they will have enough for the ceremony, venue, catering, and DJ, plus the honeymoon. They will even have enough left over to purchase a couple of household appliances. And these are just part of the benefits of TFSAs.
TFSAs are a far better choice for a short-term savings effort than any other tax-sheltered vehicle. Gains or interest from regular savings accounts and other non-registered investment funds are taxed when you withdraw funds. TFSAs, on the other hand, do not incur these taxes.
Once your TFSA holds only liquid investments, withdrawing from it is as easy as taking funds out of a conventional bank account.
Misconceptions about TFSAs
Many people have misconceptions about TFSAs. Introduced in 2009, TFSAs were presented by financial planners as investment vehicles. However, TFSAs were created to increase savings options for all Canadians. Consumers also perceived TFSAs as vehicles for individuals with higher net worth. In reality, TFSAs are for everybody and are a straightforward way to pay for that big day.