TFSA,the tax free savings acct.

crankcall

crankcall

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There has been lots of mention about TFSA in other financial threads, but no dedicated TFSA. Lets hear what you Guru's know about this thing that looks like a gift yet only 4 out of 10 have?
How do I maximize this thing?



Let’s say you pay 30% tax on your income until you die (I’m not referring to your top marginal rate, but rather the actual percentage of combined federal and provincial income tax you pay). Now, let’s say you invest $1,000 of income in an RRSP and $1,000 of income in a TFSA. Let’s say you get an average annual compounded ROR of 7.2% over ten years––so basically you double your initial investment.

RRSP
Net amount invested: $1,000
Total value after ten years: $2,000
After tax value: $1,400
TFSA
Net amount invested: $700
Total value after ten years: $1,400
After tax value: $1,400


TFSA can be a great Estate Planning tool.
Because it is registered account, it is not probatible.
Meaning, upon your death, straight to go to the named beneficiary, or the spouse.
You don’t pay probate fee, let’s say 1% .

Another feature, upon your death, unlike cash or RRSP, it is deemed sale without taxable gain, tax free.
(someone correct me if wrong).
Many people’s RRSP can get highest income tax on the year of the death.
TFSA grow tax free when withdrawn.

Is it this good? And why doesn't the idiot I pay as a financial advisor or my bank rep know more about this than I'm learning from the interweb?
 
super duper short version

TFSA and RRSP work out the same assuming 2 things

Constant tax rate, and you reinvest your refund from your RRSP contribution.

If you expect your tax rate to be higher when you withdraw - TFSA first
If you expect your tax rate to be lowerwhen you withdraw - RRSP first

If you are in the highest bracket - RRSP first
If you are in the highest bracket but close to the 2nd highest bracket - RRSP until you are in the 2nd bracket.

Foreign dividends go into RRSP
Interest Income goes into TFSA
Canadian Dividend income - unregistered
 
crankcall said:
There has been lots of mention about TFSA in other financial threads, but no dedicated TFSA. Lets hear what you Guru's know about this thing that looks like a gift yet only 4 out of 10 have?
How do I maximize this thing?



Let’s say you pay 30% tax on your income until you die (I’m not referring to your top marginal rate, but rather the actual percentage of combined federal and provincial income tax you pay). Now, let’s say you invest $1,000 of income in an RRSP and $1,000 of income in a TFSA. Let’s say you get an average annual compounded ROR of 7.2% over ten years––so basically you double your initial investment.

RRSP
Net amount invested: $1,000
Total value after ten years: $2,000
After tax value: $1,400
TFSA
Net amount invested: $700
Total value after ten years: $1,400
After tax value: $1,400


TFSA can be a great Estate Planning tool.
Because it is registered account, it is not probatible.
Meaning, upon your death, straight to go to the named beneficiary, or the spouse.
You don’t pay probate fee, let’s say 1% .

Another feature, upon your death, unlike cash or RRSP, it is deemed sale without taxable gain, tax free.
(someone correct me if wrong).
Many people’s RRSP can get highest income tax on the year of the death.
TFSA grow tax free when withdrawn.

Is it this good? And why doesn't the idiot I pay as a financial advisor or my bank rep know more about this than I'm learning from the interweb?
Click to expand...

You do all the research, and pay the "idiot"..............hmmmm. I read the same article today, and smiled.
Max out your TFSA. $25,500 right now.
If you think you may enjoy a 16% return, get an online / self trading TFSA, and buy AGNC (nasdaq).
Enjoy. But - if your main concern is 'death'..........why bother?
 
My main concern isn't my death, but we have elderly parents that feel the same as we do about surrendering any more tax needed and estate planning has been a hot topic at dinners lately.
I'm very attached to what little money i have and inheiriting as much as possible is part of my retirement strategy.
 
Im all for tfsa and have one as well as my wife. RRSP on the other hand i want nothing to do with them.

For all those that do, lemme ask you one thing, when was the last time the government reduced the tax? lol
 
Paul1000RR said:
For all those that do, lemme ask you one thing, when was the last time the government reduced the tax? lol
Click to expand...

hmm.. its about brackets? for the most part people end up in a lower bracket when they retire. There is a minority that doesn't but there isn't many..

taxes get lower all the time actualy because the same bracket now gathers a higher income. but in fact, people got a much bigger reduction in about 2000 because they created an extra bracket.
 
TFSAs and RSPs are independent and quite different.

TFSA's
- a tax AVOIDANCE mechanism (which is legal unlike tax evasion)
- income earned within is tax free
- you can contribute to the maximum of your 'room'
- room accumulates starting from 2009 (assuming you're age 18 and have a SIN) as follows:
2009 -2012 inclusive at $5K/year
2013 room is $5500
- maximum total available is now $25,500
- if you don't use the room, you don't lose it.
- there is no tax deduction when you deposit nor an amount going into taxable income when you withdraw.
- you can regain the room that you 'lost' when you withdraw a year after the withdrawal.

RSPs are a tax DEFERRAL mechanism. You are POSTPONING taxes not avoiding them.

Of the two I would preferentially put money into TFSAs.

What's the best kind of investment to put into a TFSA? One of two kinds; either:
[1] something that bears interest income (e.g. GICs) since interest income is taxed at highest rates, or
[2] some wildass speculative stock idea which is either going to zero or be a ten-bagger.
 
crankcall said:
My main concern isn't my death, but we have elderly parents that feel the same as we do about surrendering any more tax needed and estate planning has been a hot topic at dinners lately.
I'm very attached to what little money i have and inheiriting as much as possible is part of my retirement strategy.
Click to expand...

As one parent slips away, replace his / her name with yours on ALL titles, deeds and accounts (except TFSA's).
Prior to their passing, be sure they max out their TFSA's with high yielding divi stocks (or funds).
The TFSA accts can only be in 'their' name. Cashing it out is like falling off a log, assuming a proper 'will' is in place.
(I just went through similar circumstances within the last yr, or two).
 
Gary said:
As one parent slips away, replace his / her name with yours on ALL titles, deeds and accounts (except TFSA's).
Prior to their passing, be sure they max out their TFSA's with high yielding divi stocks (or funds).
The TFSA accts can only be in 'their' name. Cashing it out is like falling off a log, assuming a proper 'will' is in place.
(I just went through similar circumstances within the last yr, or two).
Click to expand...


I'm sorry for your loss, and thankyou for the advice
 
OpenGambit said:
super duper short version

TFSA and RRSP work out the same assuming 2 things

Constant tax rate, and you reinvest your refund from your RRSP contribution.

If you expect your tax rate to be higher when you withdraw - TFSA first
If you expect your tax rate to be lowerwhen you withdraw - RRSP first

If you are in the highest bracket - RRSP first
If you are in the highest bracket but close to the 2nd highest bracket - RRSP until you are in the 2nd bracket.

Foreign dividends go into RRSP
Interest Income goes into TFSA
Canadian Dividend income - unregistered
Click to expand...

why would you put canadian dividend income into an unregistered account? just wondering what your rationale would be.
 
dividend tax credit.
 
There's also a timing balance between the accounts. Generally, younger to TFSA and older to RRSP.

A younger person may require liquidity at some point. They also have lower income (and less RRSP room). Also, the earlier the funds are in the TFSA earning, the more tax they will avoid over their lifespan. As income grows over their careers, RRSP room grows, leaving room for shorter term (relative to when they were in their 20s) tax deferral. So now when income is higher, take advantage of that pent up space in the RRSP and reduce your present tax liability. You put too much money in your RRSP and the clawbacks and forced withdrawals will hurt at retirement. The CRA will treat you like you are a lot richer than you feel.

Only caveat to this all is buying a home: put 25k in your RRSP from when you are 18 until you are finished school (if you are dumb enough like me to have to go to school) and use that for the home buyers plan down payment. After that, don't put money into your RRSP until your mortgage is paid off.

On top of all this is the fact that this is all FIRST WORLD PROBLEMS
 
eljay said:
On top of all this is the fact that this is all FIRST WORLD PROBLEMS
Click to expand...

Yep, and that's why I live here. My family left the rocky wasteland generations ago so we could deal with first world problems, we dealt with NEW world problems for a hundred years or so, this is better :)

I wish I had a better understanding of all this, I'm learning and appreciate the advice I get from you guys that are obviously in the industry and are actually giving advice that will benefit me.
I pay two financial advisors, that i like well enough, but they needs to make a living to so all he does "isn't just for me".
 
crankcall said:
Yep, and that's why I live here. My family left the rocky wasteland generations ago so we could deal with first world problems, we dealt with NEW world problems for a hundred years or so, this is better :)

I wish I had a better understanding of all this, I'm learning and appreciate the advice I get from you guys that are obviously in the industry and are actually giving advice that will benefit me.
I pay two financial advisors, that i like well enough, but they needs to make a living to so all he does "isn't just for me".
Click to expand...

Maybe look into a fee based advisor? they charge anywhere from 0.5-1.5% of your portfolio size to manage it for you.
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