Four ways to supercharge your TFSA

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This article is one of the most popular ones we have ever published. With the decrease in your 2016 annual TFSA contribution limit, making the most of your tax-free savings account can be more important than ever. With that in mind, we thought you might like to give it another read. Naturally, we updated the dates and numbers so you can continue supercharging your TFSA.

 

 

Are you getting the most of your tax-free savings?

 

If you’re fine with growing your TFSA with 1% interest, stop reading this now.

This article is for people who are tired of seeing only a whimper of growth. Repeat after me: I want to supercharge my TFSA.

We’ve collected some tips that may be the secret weapons you’re looking for.

 

Use it as a retirement fund

We’re not saying to pull everything out of your RRSP—it’s still a great way to save for retirement. But TFSAs are becoming serious competition. They are especially important once you turn 71 when mandatory RRIF withdrawals kick in. If you’re over the $71,000 income threshold, you’ll possibly lose government income benefits.

Since TFSA withdrawals are not taxed, you can use them to supplement your income without adding to your taxable income numbers.

 

Use it as your emergency fund

Say your roof caves in or your car starts making that funny noise again, you’re going to need access to cash. TFSAs are the best umbrella for the proverbial rainy day. You can withdraw as much or as little as you need to keep your budget balanced. And in the following year, you’ll be able to put any withdrawals back in.  [Remember, the money in your TFSA is as liquid as the investments you hold. If you want to withdraw, you’ll have to factor in settlement time for the cash to appear in your account.]

 

Use it to pass on wealth

TFSA beneficiary are two words your loved ones want you to know. Straight from the CRA’s rulebook: any money passed down to a beneficiary does not need to go through your estate. That means your family won’t get dinged on probate taxes from capital gains. If you can’t remember whether you designated a beneficiary when you opened your TFSA, check your account documentation.

 

Use it as collateral

It’s nice to see a big number at the bottom of your statement but that money can do more than look pretty. Put it to work. Your TFSA can be used as collateral when you’re trying to secure a loan. Better yet, if you have a margin trading account, you can leverage the assets in your TFSA to increase your buying power in your margin account. (Okay, this is only available at Questrade, but according to Charles Brown and stockhouse.com, “I don’t understand why everyone isn’t doing this.”)


Hungry for more reading?

  1. What’s Margin Power?
  2. 2015 tax calendar
  3. Questrade’s guide to contributing to a registered account

 

This article and comparisons used are for informational purposes only and not intended as a recommendation or solicitation of a particular investment strategy. Trading in a TFSA may have tax implications.  Please speak to a qualified tax advisor.

 

How do you get the maximum benefit from your TFSA? Is it a part of your investment strategy? Share your questions or comments below and you could win.

What do you think? Login to comment on this article.

  • What incentives do you have for existing customers like me to move their TFSA to you?  If you are a new customer you are offering free trades to attract them but I do not see anything for existing customers.  Malcolm

  • Hi maancr2,

    We like to take care of our existing clients too. Open a TFSA by March 3rd, 2014 and you can get up to three months of unlimited free trades. See below for more details:

    www.questrade.com/.../rrsp

  • Since TFSA's have the opportunity to grow (exponentially, if you could pull it off), the gains would be tax free, or all yours.  Plus, with time, a couple decades , or three or more when you retire and are old and not so desirable, the potential could very well be great.  

    Today, we all see about a third of our income deducted from our pay checks, due to taxes and you know what else.  Imagine if you're retired, withdrawing from TFSA, there are no fingers in your pay check that you earned, but the fingers of taxation will be there with the RRSP. Correct? So, go with the TFSA, its really all for you.

    RobertO

    I hope this is convincing enough to get others to put money in a new TFSA for themselves and earns me the 5 free trades for January.

    Good diligence to all.

  • It's a great idea to help us to trade more often. Thanks.

  • I signed up and never got anything

  • TFSAs are great for not being taxed in your retirement (or later years).  Invested wisely, you could potentially profit from unlimited gains and dividends in your TFSA which cannot be touched, tax-wise.  VERY smart for those wanting to save away more than RRSPs for later years, but to avoid too much taxable income.

  • As soon as I got involved in trading I transferred all of my TFSA and have since turned it into a 30% return in the last year and a half. Would never get that with a bank. Love it.

  • I read about it on forum but would like to have a confirmation with you. In a TSFA account, if we have American stock, are we tax on the dividende ? I hear it was 30% on the dividende and if we fill a form we are only tax 15%...

    And do we have to declare it if you receive US dividende in your TSFA account ?

    Thank for your time !!

  • I like to purchase stocks and ETFs for dividends (along with hopefully capital gains).  Since I don't need the money now, any dividends I get, I use it to purchase more shares of an ETF or stock.  Kind of like compounding here.  My dream is to have enough monthly dividend income to pay some of my expenses in my later years of life.

    Cheers!

  • Hi martineau090,

    I can’t advise you on what you can and can’t declare, but as long as you have provided proof of Canadian residency (e.g. driver’s license), you will automatically qualify for the 15%.

  • No one has yet mentioned the biggest benefits to me and that is the ability to convert CDN $ to US $ once to buy a us stock and then to leave the currency in US $ when I sell it. The result is that I have separate TFSA accounts  for each currency. My second biggest benefit is paperwork avoidance - not having to worry about tracking all of my TFSA trades for CRA and CRA's tricky conditions about artificial capital losses (that do not apply to TFSA accounts). One caveat not mentioned is that US citizens (even if they are Cdn residents) do not get the special RRSP treatment - so they would not benefit from all the CRA freedom that I get to enjoy as I Canadian citizen and resident.

  • I use my RRSP account as my conservative investment account, and my TFSA for riskier speculation. Because of the low contribution limit, this keeps me from risking too much capital on things that may experience large losses. On the other hand, if I experience large gains (such as last year, where I had gains of 30%), it's all tax free!

  • Yes all comments.

    BUT my questions are nebulous into the future.  What happens if the Harper gov and the world run into funding problems?  Legislation is already in place to "bail-in" bank deposits.  What makes any thinking person believe that a TFSA is exempt.

    When the financial system goes down they will come after every single dime.  So I say assets in my hands are the only safe assets.

    How long does it take to liquidate an investment?  Settlement time and cash transfer time.  What if the banks are shut like in Greece right now?  No matter what trading account/RSP/TFSA  vehicle fact still remains that all investments are NOT IN YOUR NAME...and not really liquid at all.

    So I have not invested in our TFSA.  I have invested in gold bullion that I have physical control over.

  • I incur some large charges in US$ early in each year.  I keep US stocks or cash in my TFSA and in December I transfer out enough US$ to pay for these charges in March. During the year I transfer in to a margin account that amount of funds (US$ if I have them) on top of my $5500 and invest it in something safe denominated in US$.  Hopefully it grows to repeat this each year.  If nothing else, it helps to avoid currency conversion charges.

  • One great thing about TFSA, at the end of the year , you do not have to account for capital gains,div or interest earned.If you are a frequent trader, this saves time and taxes also.Unfortunately if you have losses, you cannot apply them against your cap gains.

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