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Posts Tagged ‘TFSA’

How To Maximize your Tax Free Savings Account

April 8th, 2010

How To Maximize your Tax Free Savings Account

It is one thing to be provided with a gift, and quite another to learn how to make the most use of it.  A common complaint is the dearth of cash, especially after the holiday season.  Ottawa’s answer to this was the Tax Free Savings Plan, introduced in the 2008 federal budget, effective from 2nd January 2009. Many are aware of this financial innovation, yet, not everyone has the savvy to optimize it. Studies actually bear this out. It is advisable to educate oneself in order to benefit to the greatest extent possible from the TFSA.

So many thousands of people signed up for this account since October 2008.  Home prices fell, and so did the stock markets, bringing RRSP values down too.  Canadians seem to be realizing the importance of saving money for a rainy day as well as personal splurges. It has been predicted that Canadians would sock away up to US $ 115 billion over 5 years from 2010.

Yes, one can put away money, but how does one maximize one’s savings?  Especially during the proverbial post-holiday cash crunch, as in the aftermath of an extravagant December of the previous year!  Financial experts have come up with ways to work the TFSA to everyone’s advantage. Very few investors are aware that contributions in kind are permissible, like stocks.  To elucidate, if someone cannot come up with $5000 cash, he or she can transfer a non-registered investment into the account.

There are pros and cons to doing this and one must be conscious of the tax repercussions.  Opting for this course of action eliminates the need to come up with cash, at the same time, if a stock is transferred at a higher price, the gains are taxable, but if transferred at a lower price than what was paid, a tax loss cannot be claimed. Here, one can sell the non-registered stock, invest the money in the TFSA and wait 30 days so the loss rules elapse (which would apply if an identical stock was purchased)

Another key optimization strategy was the swap.  If an investor had $5000 in a TFSA and $5000 in stocks and wished to free up some cash for some purchase, he could withdraw the cash and replace it with the stocks of the same value. This facility increases the wealth growth aspect of the TFSA. How does this happen? It is best illustrated with an example: Say a person takes $5000 out of his account in cash and replaces it with $5000 of stocks.  The stocks appreciate in value to $20,000 (in an ideal world!). If the stocks are withdrawn at this point, it leaves a residual contribution room of $20,000!

The downside to this would be the waiting period until January of the following year before the investor can re-contribute, thus losing tax-free growth in the interim. The smart thing to do here would be to swap the stocks for cash, thereby capturing the new contribution room. (It should be noted here that a TFSA swap is likened to an RRSP swap. Both feature acquisition and disposal of property at fair market value.  Capital gains arising are taxed; capital losses cannot be claimed).

Unfortunately, the Finance Department has recently introduced an amendment whereby swaps have been banned, as some overuse of this avenue was noted.  But one can still sell assets in one account and re-buy them in the TFSA and withdraw, thus minimizing the tax burden, but this is the more expensive route than swaps.

Another option is to sell the stock in the TFSA for $20,000.

So a TFSA is more than just an account into which one deposits $5000 and forgets about it.  As can be seen from the above, one can use creativity and generate more wealth than that from tax savings alone.

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Taking Advantage of the TFSA

June 6th, 2009

Canadians are Catching on to the TFSA.

According to a survey by a global market information and insight group, the introduction of the new Tax Free Savings Accounts or TFSAs has caught the attention of many Canadians. “The combination of advertising by government and financial institutions has translated into a high awareness of the new investment vehicle and good initial uptake,” said Rhonda Grunier, vice-president of TNS Canadian Facts and director of the market research firm’s TFSA study. The survey found that 79 per cent of Canadians are aware of TFSAs, and this is only somewhat behind awareness of the longer running RRSP (94%) and RESP (84%) accounts. There is also little reported confusion between TFSAs and RRSPs. Only 27 per cent say that they do not understand the difference between the two.

Who’s Most Likely to Take Advantage of the TFSA?

According to the survey Middle and Higher Income households are most likely to take advantage.

When it comes to opening a TFSA, already 14 per cent of Canadians have already jumped on the savings wagon. Another 36 per cent of Canadians are either very likely (18%) or somewhat likely to do so (18%) in 2009. Adding those statistics and subtracting from 100 leaves 48 per cent who are not likely to open an account this year.

Not everybody is jumping on the savings wagon.

Although the adoption rate for the new accounts is quite high, it is also true that lower income households are less likely to open an account (28% of Canadians with a household income below $35,000 have opened or plan to open a TFSA versus half of all Canadians).

The number on reason for not opening a TFSA is…

If you haven’t opened up a Tax Free Savings Account chances are it’s not because you don’t see the value. So what is stopping most Canadians from taking control of their financial future? You probably guess it… Money! In fact, among the most frequently cited reasons for not opening a TFSA is a lack of financial resources (41%).

About the TFSA survey.

The survey was conducted using the firm’s national bi-weekly telephone omnibus service, TNS Express Telephone. A total of 1,016 nationally representative Canadian adults were interviewed between February 2 and 5, 2009. For a survey sample this size, the margin of sampling error is plus or minus 3.1 percentage points, 19 times out of 20.

Find out more information on Canada’s adoption of the TFSA or read the full article here: Awareness of Tax Free Savings Accounts Very High: Survey

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Build up Your TFSA with Bonus Money

May 23rd, 2009

Each time you refer a friend or family member and they open up an ING DIRECT account with $100 or more – you both get a $13 Bonus! Share the savings with your friends and earn up to $1,400! Here’s how it works:

1. Tell your friend your unique Orange Key (Ours= 21327984S1) by simply entering their name and e-mail address.

2. ING DIRECT will send them an e-mail on your behalf letting them know the benefits of saving and give them your unique Orange Key (so you both get the Bonus).

3. Bonuses will be deposited into the Investment Savings Accounts within 24 hours of your friends’ account opening. Don’t have an Investment Savings Account (ISA) yet? ING DIRECT will gladly open one up for your bonuses. Remember the ISA has no fees or service charges, no minimums, and you can move your money at any time.

Plus the more friends who jump on the ING DIRECT savings bandwagon, the more referral Bonuses you can make. Now you can reward yourself while helping your friends save their money. Tell your friends today!

ING DIRECT Bonus Offer

Number of Referrals 10 Friends = Referral Bonus $130 = Extra Bonus $50 = TOTAL Bonus $180
Number of Referrals 20 Friends = Referral Bonus $260 = Extra Bonus $150 = TOTAL Bonus $410
Number of Referrals 30 Friends = Referral Bonus $390 = Extra Bonus $300 = TOTAL Bonus $690


Number of Referrals 40 Friends = Referral Bonus $520 = Extra Bonus $500 = TOTAL Bonus $1,020

Number of Referrals 50 Friends = Referral Bonus $650 = Extra Bonus $750 = TOTAL Bonus $1,400

The more people you refer, the more bonuses you earn! Go online and log into your Account to start referring today. Just follow the prompts to share your unique Orange Key with your friends and family. You can also find your Orange Key on your Statement.

To get started go to: http://www.ingdirect.ca/en/signmeup/index.html

P.S. If you would like to get started right away and need an Orange Key please feel free to use ours: It is: 21327984S1

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