How Couples Can Use TFSAs to Save for Their Wedding

Philip Porado
by Philip Porado May 12, 2017 / No Comments

Thank goodness for long engagements. They provide couples with enough time to save up the cash needed to cover wedding costs—which, with destination weddings and other lavish options, have been skyrocketing since the early 2000s.

Depending on whose data you look at, weddings now cost anywhere from $15,000 for a catered, but otherwise rather no-frills affair, to $50,000 and up for couples bent on arriving in a Rolls Royce, and for whom family pressure means they’ll have to invite a lot of people they’ve never met. And that’s before honeymoon costs are factored in.

A 2015 survey by Wedding Bells magazine puts the cost for Canadian couples at $30,717, including honeymoon. Other surveys pin the cost at $32,000, and with parents increasingly balking at such prices, couples set on making the day as lavish as possible are opting to pay for it themselves.

This generation’s practical, though. Younger couples worried by divorce statistics now devote years to ensuring they’re right for each other prior to tying the knot. That trend’s lengthened engagements, which means one obvious tool to save up for the big day is the TFSA.

While a TFSA contribution limit decrease in 2016 took some wind out of the TFSA’s sails, the annual individual limits of $5,500 are still solid for a savings vehicle on which you pay no tax on growth (whether it’s from interest income or investment returns). In fact, if each half of a couple were able to set aside the annual maximum, they’d sock away enough for the ceremony, catering, tent, DJ and honeymoon within three years; and have a bit left over for any household necessities their guests failed to choose from the registry.

If both you and your future spouse were over 18 in 2009 when TFSAs were introduced, you could have up to $52,000 each in TFSA contribution room. The 2017 TFSA contribution limit is $5,500.

For a short-term savings effort (which I classify as anything less than five years—and preferably 10), a TFSA’s a far better choice than other tax-sheltered vehicles, like RRSPs, which penalize withdrawals prior to retirement. They’re also better than conventional savings accounts or other non-registered investment funds, since interest or gains from those vehicles are taxed upon either withdrawal or redemption.

What’s more, withdrawing from a TFSA is as easy as pulling funds from a conventional bank account—provided none of the investments held within it are illiquid.

Certain misconceptions continue to float around about TFSAs. Even though the federal government created them to expand savings options for all Canadians, many financial planners initially presented them to clients solely as investment vehicles, and encouraged their use to house mutual funds and individual equities.

What’s more, the good-sized annual contribution limits, and multi-year contribution schemes touted by advisors, enhanced consumer perceptions that TFSAs were intended for use by higher-net-worth households. (Part of the confusion stemmed from a plethora of articles by tax experts raising concerns about treatment of dividend-paying stocks held within TFSAs shortly after they were introduced.)

In reality, TFSAs are for everyone and work just as well for sheltering fixed-growth investments like GICs, or other safe options like money-market funds and high-interest savings accounts.

You can, of course, house mutual funds in a TFSA and redeem them when you need to pay wedding bills—provided the funds in question are in demand and easy to sell. But, again, that may not be the best option for a short-term savings effort, since you can’t count on the markets to secure enough returns to meet anticipated costs.

Plus, if you happen to set your wedding date for a time when markets correct, you may find yourself making last-minute trims to either the guest list or the size of the dessert bar. You don’t need that kind of stress.

While interest rates on GICs and high-interest savings accounts may not appear stellar during a Donald Trump-bump fueled equity market, they are consistent, and will help a couple reach its goal. This is one time in investing when it’s not a race.

And, if 10-years-on couples who’ve shelled out for lavish weddings will say nothing else, they’ll tell you this: No marriage is about a single, all-encompassing big day; it’s about a series of little days, and a few big ones, that make for a life together.

Still, it’s nice to know there’s a straightforward way to pay for that big day.

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