TFSAs present several strategies
By Gordon Powers, Sympatico / MSN Finance
Although the TFSA is just out of the box, advisors are talking to clients how about how to best put them to use. For those of you who have some money to work with, here are a few ideas making the rounds ….
Anybody who already has investment savings in a non-registered account should consider moving at least some of those assets into a TFSA, since any future investment income will be sheltered from taxes.
For couples, the potential TFSA room is actually $10,000, split in two accounts. This means single-income families will be able to do more income splitting since they'll have the full $10,000 to work with, all of which can be provided by the higher-income earner. When the low-income spouse withdraws TFSA money down the road, it won't be attributed back to the higher earner.
For younger families, TFSA savings might make booking a parental leave to care for a child a bit easier since future withdrawals won't affect EI or child tax benefits.
If you have an employer-sponsored pension plan, you’ve also have a ‘pension adjustment’ factor that limits the amount you can put into an RRSP each year. Use your TFSA account to top up your retirement savings. Self-employed people who have reached the age of 71 and can no longer contribute to an RRSP can do the same.
Even if you have RRSP room there may be an advantage to storing it up, and using a TFSA in the meantime. Should your income increase, TFSA funds can be withdrawn to make a deductible RRSP contribution, creating TFSA repayment room the following year. This might appeal to young professionals since their income generally jumps once they complete their training.
Posted by: Jon | Jan 10, 2022 9:36:34 AM
There is no wrong way to use your TFSA. Each person has to find a tool that suits their need and comfort level. But by all means use it. Even if you have a low risk tolerance, at least shelter your GIC, Money Market ... from taxes.
I will use it as a complementry toll for all my other investments. If you are a little more risk tolerant, find a stock or mutual fund with a DRIP program. Eg Bank stocks. pipeline, or a good income trust.
These are good blue chip companies paying in the + 6% intrest rate as you wait for your investment to recover. Sure I won't be able to use the dividend tax credit, or write off any losses, but the reward of no capital gains is hudge. As I get older and my fund gets larger (hopefully) my tolerance to risk will probably change to more conservative investments, but for now use the market slump and dollar cost averaging + tax free capital gains to get your TFSA on a terrific jump start.
BUT BY ALL MEANS USE YOUR TFSA FOR SOMETHING.
Jon
Posted by: shawn | Jan 10, 2022 10:29:42 AM
Does it make more sense to use the TFSA for riskier investments, since you won't have to pay taxes on any outsize gains? Or, do you lose the ability for a capital loss in a TFSA? Obviously, riskier investments mean greater chance for a loss.
Posted by: Don | Jan 10, 2022 10:51:32 AM
Don't over think the TFSA. As already stated, let your investment risk tolerance and growth goals be your guide. Have multiple goals with matching investments in your plan - some GICs or a High Interest account for short and medium term goals and equities for long term. It's January 10th. Haven't you done it yet? Just do it and stop kvetching.
Posted by: Rob | Jan 10, 2022 11:02:33 AM
Speaking with my banking representative I was amazed to hear this.If I was to make a deposit of shares (in eg. ABC Corp.) to my TFSA,5000 shares @$1.00 a share to =$5000,and if these shares rose in value,say 5x,and I sold them for $25,000,then withdrew the money,my new contribution window is $25,000 for the TFSA account.Any comments?
Posted by: Marlene Bonner | Jan 10, 2022 11:27:41 AM
Hi.
I have a grandson turning 18 this month and he will receive a small inheritance on his birthday.What would be the benefits of a TFSA be for him now and in the future? I need some reasons to give him as he is pretty tuned into money. I would appreciate a response
Posted by: Don | Jan 10, 2022 5:14:07 PM
Rob. Your banking rep is wrong. In your scenario your new contribution amount would be $30,000. The $25,000 you removed plus your new annual amount of $5,000.
(sorry, couldn't resist saying a banker was wrong)
Posted by: Don | Jan 11, 2022 8:30:24 PM
Marlene, the benefit of using a TFSA for up to $5,000 per year of his inheritance is no tax on his investment gains. The first lesson your grandson should learn is that two of the biggest enemies of achieving and maintaining financial independance are inflation and taxes. Inflation erodes purchasing power and taxes steal the fruits of his labour. Earn interest, dividends or capital gains outside a TFSA and the government gets a piece of it. In a TFSA he gets to keep it all. What a tremendous deal !!! The only caveat is to stay away from speculative stuff because there's no capital loss in a TFSA.
Posted by: Brandon | Jan 11, 2022 11:24:18 PM
Hi,
I'm 23 and im looking at buying a home in the nexts 3 to 5 years. I will be opening a TFSA account by the end of this month but I dont know the right type of investment to put my money in, does anyone have any comments ?
Thank You
Brandon
Posted by: Sampson | Jan 12, 2022 11:46:08 PM
@ Brandon,
If you plan on using the money you save into the TFSA in 3-5 years, PLEASE, PLEASE, leave it in a high-interest savings account. With such a short time horizon, and markets as volatile as they are, you'd be risking the chance of NOT buying a house if you invest in riskier holdings.
Just make a plan of how much cash you need to save in 3-5 years. If there is some wiggle room (excess savings) then and ONLY then should you consider higher risk investments.
Posted by: Frank | Feb 8, 2022 1:24:04 PM
can you transfer money from an RRSP to a TFSA without having to pay taxes on the rrsp withdraw
Posted by: Gord Powers | Feb 8, 2022 4:02:38 PM
No, I'm afraid not.