August 15th, 2010

The Tax Free Savings Account is an excellent option for the 20-something investor.  20 is a good age to start thinking about creating savings.  Some people are ahead of their time and have earned a lot of money at this point: they would surely want to do better than a Youth Account, which pays very little interest!  20 is also above the 18-year age limit of the TFSA.

For this age group, it would be advisable to, first, set up an automatic transfer system, as in a certain percentage of their earnings each month set aside for investment into the TFSA.   If one banks online, this is easy to set up and does not need much monitoring.  This is for those who do not have $5,000 right away.  (Of course, Mom or Dad can come in quite handy over here and, possibly, make their own contribution to encourage the saving streak in juniors!  Just perhaps include the clause that the money cannot be touched for whimsical expenditure and specify the time period as well!)  Parents will not be hit with any sort of taxes for their generosity, as there are neither attribution rules nor tax implications with the TFSA.

Even if one is married at this age, which is often the case, spousal contributions are permitted.  Withdrawals can be easily made with no fees and the account can be replenished at any time without penalties.   This account is easy to manage at this stage in life especially because, from a taxation point of view, it is fairly simple to figure out and way easier on the bank account…and the nerves!  It offers much leeway to the investor.

So when should one launch off into the TFSA world?  As early as possible, as soon as one hits 18 preferably!  (Or, back to our previous strategy of getting one’s parents to set the ball rolling, even before 18!  The parents can manage the account until the statutory age is reached.)  That way, by age 20, one is already in a savings groove so to speak, and has a feel for how everything works.  The longer one can have tax -sheltered savings, the further it goes towards making one rich.

A lot of 20- something year olds would balk at the mere mention of $5,000: while some adults’ scoff at how paltry the sum is, it seems enormous to the youngsters.  Stay in faith; where there’s a will, there’s a way!  Apart from the usual ideas of hosting a garage sale and going on eBay to sell your designer clothes, don’t forget that trusty source of all things good: your parents!

Here, a sales pitch has to be carefully formulated.   Aim for honesty, which is always the best policy!  Then, highlight what’s in it for them.   Adults despise taxes and will do anything to minimize them legally, and this is universally true.   The people who love paying taxes have just got to be in the minority!  (Hopefully by this time you have already created a foundation of trust with your parents by keeping curfews and doing chores!  If not, a good time to start would be before you deliver your sale’s pitch!)   Inform your parents that there are no tax attribution rules, and they can consider this as good tax planning: if they give you your inheritance in advance, you will be judicious with it and allow it to accumulate.   You can offer, as well, to keep all documentation transparent, give them full online access, and invite them to monitor it regularly with you on a set schedule.   This could also afford an opportunity to do things as a family and spend more quality time together.  The TFSA can also be used like an RESP for future studies, with way less restrictions.

If you are living apart and have your own job, consider moving back in with your parents to save on the rent which can be invested in the TFSA.  Many parents, especially those getting on in years or those who do not have too much company, might welcome this greatly.   Of course, offer to contribute to some of the household expenses and certainly pull your weight to make this more appealing to Mum and Dad!

How would a 20-something get the most out of the TFSA?   By adopting these strategies as are elucidated in Gordon Pape’s Ultimate TFSA Guide:

1. Go all the way and deposit $5,000 into your account per annum.

2. Invest in early January of each year as contribution room of another $5,000 becomes available each year.

3.  Educate yourself about contributions in kind or swaps and try to maximize your return.

(Gordon Pape’s Ultimate TFSA Guide would provide more information on these.)

If one is still studying at this point or has only recently joined the work force, the TFSA has none of the restrictions of the RRSP in terms of percentage of income that can be contributed.   You or your parents can open a self-directed TFSA and deposit $5,000 even if your earnings are nil.

Go for it!   The TFSA can take you places!   Start now!  The sky’s the limit to realizing your dreams!

March 26th, 2009

If you own a Stock on the CNSX you will be pleased to hear that the Canadian National Stock Exchange has been added to the list of “Designated Stock Exchanges”, allowing securities listed on the exchange to automatically be eligible for registered accounts such as RRSPs and Tax-free Savings Accounts, CNSX Markets Inc. said Tuesday.

The designation, made by federal Finance Minister Jim Flaherty, came into effect on Jan. 1, under the Income Tax Act. 

CNSX says it is the first stock exchange to achieve this designation since the new criteria and process were announced in July 2008. Accordingly, CNSX will be added to the list of designated exchanges posted on the Department of Finance Web site. 

“This designation levels the playing field among stock exchanges in Canada and means that CNSX is competitive in all respects, including allowing investors the ability to buy and hold CNSX-listed securities in their RRSPs and their TFSAs, just as they do with other securities. Along with CNSX’s listing cost advantages and streamlined regulatory model, this will encourage more companies to choose to list on CNSX,” said Rob Cook, president of CNSX.

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January 19th, 2009

The Tax Free Savings Account (TFSA) is a breakthrough in Canadian finance. The TFSA acts as a high interest savings account where you can grow and withdraw your money completely tax free, whenever you want. Of course, this financial breakthrough has started the rumor mill going as well. Many people are confused about what’s true, what’s false and what the TFSA can really do to help them through the financial hardship.