GrantM

TFSA Contributions

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GrantM

Hi All,

I have been given the following info and I'm not sure how correct it is or if I am understanding correctly so some advice would be great.

So as most of you know the TFSA limit is being reduced from $10,000 in 2015 to $5,500 in 2016. Obviously it makes sense to take advantage of this right now.

Now, the advice I have been given is the following:

Because I became a PR in 2015 and I have a SIN the that $10,000 limit "accumulates" so next year I will have a limit of $15,500 that I can contribute without penalty or whatever. I have my pension money from SA so I would like to add some of that to a TFSA.

Does that make sense? This info was given to me by a Scotia bank financial advisor for free so I'm not sure that it was the best advice.

Cheers,

Grant.

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MaryJane

Yes, that is correct.

Same advice I got from RBC.

Just to expand on this: CRA says the following about TFSA contribution room:

TFSA contribution room

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.

Starting in 2009, TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older, have a valid Canadian social insurance number and are a resident of Canada.

You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.

The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.

The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.

The annual TFSA dollar limit for 2015 was $10,000.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html

Edited by MaryJane
Added more info

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GrantM

Yes, that is correct.

Same advice I got from RBC.

Sweet! I really didn't want to run around setting TFSA today.

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Sideline

Imho, even though this vehicle is 'tax free' both depositing in (hey it's after tax money after all, so you can't be double taxed) and taking it out (again it's after tax money and a little bit of growth via GIC etc doesn't open you to those taxes as you won't earn enough to go over a tax free threshold anyway), it's kind of a double edged sword.

You are 'saving' after tax money in a 'tax free' manner. Yet if you own debt, especially a mortgage you are essentially going backwards. Your average TFSA (because most everyone wants a risk free low yeild 'safe' money storage for these savings) will yield a percent or so - not very much- (plus dividends from any shares/investments) but at the extremely low input amounts annually you won't be owning huge dividend paying investments here anyway.

Your mortgage will be costing you about 2.5 to 3% or more (about double the tax saving interest). Armotize that same payment by paying the TFSA amount to a mortgage and you accelerate your mortgage down very fast, saving tens of thousands both in Dollars and years off the mortgage. Paying down the mortgage will yeild far more after tax money far quicker.

Then the nice thing with a TFSA, should you want to use it, it accumulates EVERY YEAR and no penalties. So it take you 12 years to pay off a mortgage (usually 20/30 years when not accelerating the payment) by increasing your payments! Well no problem, you now have 12x$5,000 =$60,000 to catch up on. :) just rounding off the numbers...

Mortgage is dead (paid up) and the money paid to mortgage and the extra payments now goes into TFSA and you win both rounds as you have a hearty amount to catch up on.

I had this same argument with a banker recently and they were dumb founded, they had never thought of that :P they even tried the argument of higher yielding investments in a TFSA (higher risk of cours) that could earn more than the 3% mortgage. Nice idea, but 3% interest on a $500,000 mortgage is way more than a 5% return on a $5000 investment :)

Hey that's just my opinion. To each their own financial path.

And yes there are arguments for a 'rainy day' fund, but again that's a seperate discussion.

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Jules

Can someone remind me what happens if you over contribute (above your annual limit)?

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GrantM

Imho, even though this vehicle is 'tax free' both depositing in (hey it's after tax money after all, so you can't be double taxed) and taking it out (again it's after tax money and a little bit of growth via GIC etc doesn't open you to those taxes as you won't earn enough to go over a tax free threshold anyway), it's kind of a double edged sword.

You are 'saving' after tax money in a 'tax free' manner. Yet if you own debt, especially a mortgage you are essentially going backwards. Your average TFSA (because most everyone wants a risk free low yeild 'safe' money storage for these savings) will yield a percent or so - not very much- (plus dividends from any shares/investments) but at the extremely low input amounts annually you won't be owning huge dividend paying investments here anyway.

Your mortgage will be costing you about 2.5 to 3% or more (about double the tax saving interest). Armotize that same payment by paying the TFSA amount to a mortgage and you accelerate your mortgage down very fast, saving tens of thousands both in Dollars and years off the mortgage. Paying down the mortgage will yeild far more after tax money far quicker.

Then the nice thing with a TFSA, should you want to use it, it accumulates EVERY YEAR and no penalties. So it take you 12 years to pay off a mortgage (usually 20/30 years when not accelerating the payment) by increasing your payments! Well no problem, you now have 12x$5,000 =$60,000 to catch up on. :) just rounding off the numbers...

Mortgage is dead (paid up) and the money paid to mortgage and the extra payments now goes into TFSA and you win both rounds as you have a hearty amount to catch up on.

I had this same argument with a banker recently and they were dumb founded, they had never thought of that :P they even tried the argument of higher yielding investments in a TFSA (higher risk of cours) that could earn more than the 3% mortgage. Nice idea, but 3% interest on a $500,000 mortgage is way more than a 5% return on a $5000 investment :)

Hey that's just my opinion. To each their own financial path.

And yes there are arguments for a 'rainy day' fund, but again that's a seperate discussion.

Agreed - if you have debt that you are paying off. Worked the same in SA, why save money in an account at 4% (Rate I had at Nedbank for example) When you can pay off your bond at prime, credit cards at 19%+ or personal loans at even higher rates.

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MissFrowz

@ Sideline, it really depends how you invest the money in your TFSA. We have ours invested in a balanced portfolio of ETFs which generates 7% ROI on average. GICs or just cash are a waste of time for TSFAs. Maxing out your TSFAs and RRSPs every year is always a good idea, especially for future cash flow once retired. Just be sure to get a good fee based advisor, or better yet, you can open a self-directed TFSA and invest the money yourself. Stay away from mututal funds with high fees and low yield GICs, and never invest in individual stocks.

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Guest

Interesting reading peoples experience and what to do with any of that extra ''hard'' earned cash. Also an interesting read for guidance: http://business.financialpost.com/personal-finance/forget-about-the-stockspay-off-your-mortgage-or-invest-how-to-figure-out-whats-best-for-you-and-bonds-until-youve-eliminated-your-mortgage

Agree with Sideline, it all depends on your investment style? I'm a bit of risk taker and will always put 50% of what I have to invest in a high risk high return investments.

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Jules

Stiff fine of 1% per month on amount over contributed.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/txtn/txtn-eng.html

That's harsh. I better start paying more attention. Get additional company shares when I purchase through employee share option plan and I use the TFSA option. But I also buy some shares on the TSX through Questrade using TFSA account. They don't issue tax receipts for the TFSA transactions but I assume cra is watching.
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Piper

Hi All

Does any one know when the interest (yes, I know its extremely low) for the TFSA's with RBC gets paid in? It seems that my "account" is frozen (excuse the pun). It asks something about an "investor profile"?

Thanks

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MaryJane
13 hours ago, Kanrabat said:

Hi All

Does any one know when the interest (yes, I know its extremely low) for the TFSA's with RBC gets paid in? It seems that my "account" is frozen (excuse the pun). It asks something about an "investor profile"?

Thanks

Hi @Kanrabat, you just need to update your investor profile. You can do this online. There is a link that say investor profile and you just confirm some details with regards yourself (like employment details, annual salary, etc.)

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