TFSA : My dilemmas

Hi,

I love to maximize my TFSA. 

I can hear you saying, Ya, why don't you do it?

Couple of years back , I was working for 3 different employers. I was working approximately 50 hours per week. Problem was, each employer was deducting taxes according to the amount I was making at each place. After filing my tax return, I had to pay a lump sum to CRA as tax. So, the next year, I added money to RRSP. That helped me not to pay the lump sum amount to CRA. The problem is I didn't have enough money to maximize the TFSA after contributing to RRSP. 

Now, it is still a problem. Now, I got a rental property also. That makes the income even higher. So, RRSP contribution is a must. Some of the financial bloggers mentioned they maximized RRSP and TFSA. That makes me wonder how they do it! 

I am not spending like crazy. All monthly expenses are paid off. There is no credit card balance. Mortgage is the debt I have. But, still can't figure out how to maximize the registered accounts. 

The good thing about TFSA contribution room is we can check it on "My Account" on CRA to see how much is available. I wasn't very keen in tracking my deposits to TFSA. There is a penalty for over contribution.  Since my aim is to maximize TFSA, I am trying to track it using a spread sheet. Each time, i make a deposit, I enter it on the spread sheet. 

Still the question remains: How people do maximize both RRSP and TFSA?

My guess is this: the ones who maximized their RRSP  as well as TFSA must have a higher income, well over $100,000. They might have moved their non registered accounts to TFSA after it was open for all Canadians. 

What do you think?

 

Bindu

TFSA: Important things to remember

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 The money in TFSA can be withdrawn at any time without a penalty.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

DIY investing

Hi all,

I stopped doing crafts.

Way too busy with dental assisting now a days.

My goals also changed. 

I started taking care of my own investments. It is getting better every day.

I learn to to stock trading. I learned to do my own RRSP and TFSA. That is pretty cool, isn't it?

No one is more interested about your money than you!

So, my strategy is to do dividend investing.  Will it work? No one knows! 

But for time being I am happy and proud of being my own investment guru.

When you invest money, you want it to grow. You love to see some returns from your investments. You want your money to grow.  

So, why don't you collect some dividends from the companies you invest in?

I learned that all banks offer DIY investment options.

So I registered with my bank to invest in my RRSP.

It is very simple. You can do it online. If you give a call to the help line, the bank will be eager to help you. 

So that is how I did!