TFSA is a boon for most Canadians. The money in TFSA can be withdrawn at any time without a penalty. Investments in RRSP are subject to withdrawal tax.
Then there are some things we need to consider making investments in TFSA.
TFSA is not just a savings account
Don't be limited to having only a savings account in TFSA. You can actually hold a trading account to invest money in TFSA. It can be growth oriented or dividend income oriented: your choice. You can hold mutual funds, bonds and securities in this account. The money grow inside is not taxed.
You can invest in interest generating accounts as well. The interest is not taxed.
Transferring TFSA from one bank to another
If you need to transfer your TFSA to another financial institution, make sure you use the transfer form, T2033.
If you are withdrawing money from one TFSA and investing it in another TFSA, make sure, it won't considered as an over contribution.
Choosing the investments
If you are doing DIY dividend investing within TFSA, make sure you are holding only Canadian stocks. Dividends from foreign stocks are subjected to withholding tax.
You can also hold REITs like Reocan REIT in your TFSA. The distributions are not taxed. But make sure your investments are Canadian, to avoid paying taxes.
Paying Fees.
I used to invest as the money comes in. Then, I realized, each transaction costs me the trading fees. So, now a days, I will wait to make it at least $1000 to make a trade.
You should also check the MER or the management expense ratio, if you are investing in mutual funds.
DRIPing
DRIP is short for Dividend Re-Investment Program. I like to invest in dividend paying stocks. Some trading platforms allow to reinvest your dividend to buy the shares of the same company.
For example, you bought 100 shares of ABC company. When the quarterly dividend received, it is $12. the share is now trading at $10.25/share. If you are registered for DRIP , you will get one new share, without having to pay trading fees. If the trading cost is $7, you are saving $7 to acquire that one share. On top of it, you will get dividend for 101 shares in the next quarter.
Maximizing the contribution
Every year the government will determine how much will be the TFSA contribution room. I will suggest all of us should contribute to maximize TFSA. That is the best way to grow the money.
It may not be possible for every one to maximize the TFSA and RRSP contributions. We should at least think of maximizing our TFSA.
Estate planning
As a final point, everyone should remember to name the successor or beneficiary for TFSA. You can name spouse or common law partner as successor holder
Then they can contribute the amount to their own TFSA. No need to check the contribution room.
If the beneficiary is not a spouse/common law partner, they can contribute the proceeds to their on TFSA only if they have room available. Capital gains or income from the proceeds will be taxed as regular income from the beneficiary.
Disclaimer: I am not a financial expert. Please do your own research before making any decisions.
Bindu
