Making Sense of TFSA’s

What are the benefits of a TFSA?

In simple terms, potentially higher returns than a savings account and you don’t pay income tax on the earnings.

  • Greater choice of investments.
  • You can withdraw and then replace the money (subject to certain restrictions, talk to your advisor).
  • No tax on the growth. EVER!
  • Can be transferred to another advisor if required (Be careful with the investments inside.  Those restrictions still apply like with your RRSP).

Let’s look at an example:

We have deposited $5,000 per year over 5 years.  It has had some growth.  For argument’s sake, the total is now $22,000.  We need $20,00 to buy a car in the fall and expect a bonus at work in the new year that will allow us to replace the $20,000.  We make an annual contribution in December of $5,000 based on the current allowable limits.

In September, we withdraw $20,000 and buy the car.  In December, we deposit $5,000.  The following January, we replace the $20,000 we withdrew for the car.

What is the net effect?

  • No income tax on the withdrawn money.
  • No penalties other than whatever may have been involved with the disposition of the assets.  (Commissions, deferred sales charges.  Same as in your RRSP or non-registered monies).
  • Balance is now approximately $27,000 and we own the car.

Take the time to talk to your financial advisor about the benefit of a TFSA for your personal situation.

I have to apologize to my “American Cousins” because I don’t know the equivalent in the United States.  You too should always seek the advice of your financial advisor when making decisions about your investments and financial planning.

Make it a great day!

Barry

P.S.  What am I thankful for today?  I’m thankful for financial advisors!  I’m thankful for my LegalShield membership when I need clarification on tax matters.  I’m thankful for every opportunity to learn.

What are you thankful for today?

Disclaimer:  I was formerly in the financial services industry and have since made a change and let my licenses go.  This is strictly opinion and not to be considered advice.  You need to talk to your personal financial advisor regarding your particular situation.