Let’s address the TFSA for a moment. I have never seen an account as misused as this one. It’s sad that many Canadians still don’t understand this product. Not enough people are taking full advantage of the TFSA account. Tens of thousands of people are ‘saving’ money in these accounts for short-term purposes and wasting their investment potential. The government set up this account in 2009 but, in my opinion, they mislabelled it. They should have called it a tax-free investing account because that is what it does best. Keep your emergency fund elsewhere, because this account is built for compounding growth.
If you haven’t used it yet, in 2017 you have now accumulated $52,000 of space for you and your spouse separately. That represents $104,000 you and your spouse can now use to grow your money, with no tax implications, ever. This tax-free growth enables you to grow your money faster for your retirement. As well, your available limit grows every year.
You don’t get a deduction as you do with an RSP, but all your money grows completely tax-free when you redeem it. Since there is no income requirement to contribute to a TFSA, they are perfect for a non-income earning spouse or a young adult. In fact as soon as the children of my business owner clients turn 18, I make sure that we set up one of these accounts for them to invest in. If you are in your 40s, you retire in your 60s and die in your 80s, you can easily be using the TFSA account to grow your money tax-free up to, into and through retirement even using it as an estate planning vehicle.
I have a compelling video about the magic of the TFSA; check it out by going to YouTube and look up my channel, The Financial Toolbox. I guarantee you will learn something new. The TFSA is only one of a few tax-free growth vehicles we are allowed in Canada. Want to explore the benefits of this for yourself? Email me at Jessie@jessiechristo.com and I will help you take complete advantage of it.
When Is A Million Dollars Not A Million Dollars?
Is your portfolio costing you too much tax? You need to focus on your after-tax return. I continue to see assets being held in the wrong type of accounts by investors who don’t know better and advisors who should know better.
If you own products generating interest income such as bonds and GICs, they should be held in your RSP or IPP, as every dollar of growth in these accounts are taxed at your highest marginal tax rate.
Stocks or products generating dividends should be held in your non-registered account. If held in an RSP or IPP it can result in tax erosion as the capital gains and dividends become fully taxable when you eventually take them out as an income, and they don’t have to be.
That said, if you favour more growth investments and you have already stacked them in your non-registered account, you may need to put the rest in your RSP, if you have one.
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