What are you do­ing with your TFSA?


National Post (Latest Edition) - - YOUR MONEY - BARRY CHOI FI­NAN­CIAL EX­PERT

Regina Sy, a Crew Chief with Cana­dian Mu­sic Week re­cently started get­ting sta­ble hours where t he i ncome was pre­dictable. Rec­og­niz­ing that her Tax- Free Sav­ings Ac­count ( TFSA) was an op­tion over RRSPs and GICs, she started to make con­tri­bu­tions.

“I like how I can with­draw my money pretty quickly” she says. “I’m hop­ing to use it for travel and for big pur­chases in the fu­ture.”

Sy ad­mits that she doesn’t use her TFSA ef­fec­tively, and could al­ways l earn more about per­sonal fi­nances in gen­eral. But she’s hop­ing to change that by max­ing out her con­tri­bu­tion limit ev­ery year mov­ing for­ward.

TFSAs were in­tro­duced in 2009. I f you were 18 and lived in Canada at the time, you would cur­rentl y have a cu­mu­la­tive TFSA con­tri­bu­tion room of $ 52,000. How you use your TFSA re­ally de­pends on your cir­cum­stances.

“I think pay­ing off debt should t ake pri­or­ity be­fore open­ing a TFSA” says Markus Muhs, an In­vest­ment Ad­vi­sor in Ed­mon­ton. “At that point, you’ ll want to make sure you have an emer­gency fund i n place and t hat’s when a TFSA would be use­ful.”

If you do plan on us­ing your TFSA for short- term sav­ings, look for an ac­count that charges no fees, has no fixed terms, and no min­i­mum de­posits such as the Pres­i­dent’s Choice Fi­nan­cial ® Tax Free Sav­ings Ac­count. You’ll get a com­pet­i­tive in­ter­est rate and ev­ery dol­lar of in­ter­est earned is tax- free. In ad­di­tion, you can take ad­van­tage of pro­mo­tional rates of­fered from time to time.

“A TFSA of course has many other uses and ideal- ly is used for longer- term in­vest­ing, but even if some­one’s just start­ing out, a TFSA is use­ful” says Muhs.

Deb Cheng, a teacher from Toronto has been max­ing out her con­tri­bu­tions since 2009. Re­cently en­gaged, she now uses her TFSA for var­i­ous pri­or­i­ties.

“I mainly use my TFSA for more long- term per­sonal sav­ings” says Cheng. “I also plan to use it to­wards a down pay­ment later on and for some travel ex­penses.”

Cheng usu­ally maxes out her con­tri­bu­tions at the start of the New Year so she can for­get about the ac­count for the rest of the year but feels that the rules aren’t al­ways clear.

“I only re­cently found out that if you with­draw the full amount plus in­ter­est from your TFSA, you could r e- con­trib­ute t he s ame amount with­drawn t he fol­low­ing year in ad­di­tion to the con­tri­bu­tion amount al­lowed for the new year” she says.

Ex­cited about the in­tro­duc­tion of the TFSA in 2009, Robb En­gen, a per­sonal fi­nance blog­ger maxed out his con­tri­bu­tions in the first three years.

“I in­vested in Cana­dian div­i­dend stocks, which grew my $15,000 into $19,000” he says. I with­drew it all to topup the down pay­ment on the house we built in 2011.”

En­gen took a few years off from mak­ing con­tri­bu­tions while pri­or­i­tiz­ing other ex­penses of a grow­ing fam­ily, but re­cently started to set aside money again.

“I’ m putting $ 1 , 000 per month in- to my TFSA to makeup for lost time” he says. The plan is to max out my TFSA, plus catch up on those lost years, by con­tribut­ing at least $ 5,500 per year for the fore­see­able fu­ture.”

Not ev­ery­one will be able to max out their con­tri­bu­tions ev­ery year, but you should open up a TFSA since any gains made are com­pletely tax free. Set­ting up au­to­matic monthly con­tri­bu­tions is the best way to en­sure your TFSA is fully funded. How­ever, you don’t need to rush the process.

“Don’t feel pres­sured to open one right away if you have other li­a­bil­i­ties, or if you’re only sav­ing in your RRSP for now” says Muhs. “Your life­time con­tri­bu­tion limit grows each year, whether you use it or not.”

It doesn’t mat­ter how much money you have saved, a TFSA is a use­ful tool that will help you build wealth.

this s t o R y Wa s c R e at e d by p R e s i d e n t ’ s choice fi­nan­cial and c o n t e n t WoRks, p o s t me d i a’ s c o mmeRc i a l con­tent divi­sion.


If you do plan on us­ing your TFSA for short-term sav­ings, look for an ac­count that charges no fees, has no fixed terms, and no min­i­mum de­posits

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