Carol Plaisier

Tax Free Savings Accounts

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I’m an Oceanside investment and insurance advisor with over 30 years of financial service experience. I specialize in helping women through periods of transition: divorce, losing a spouse, preparing for retirement and women who steward the family finances. I believe the more you understand about the investments or insurance that you own, the better you will be able to sleep at night without worrying you will end up a ‘bag lady’ on the streets. Many of my female clients have questions regarding various aspects of their financial security and you may have some of the same questions and interest.

Let’s talk about Tax Free Savings Accounts (TFSA). The government does not give you many chances to save on taxes, this is definitely one you should be taking advantage of. You have been allowed to contribute to a tax free savings account since 2009, with varying maximum annual contribution limits.

You do not have to contribute annually, or even the maximum annually, and all limits can be carried forward to future years indefinitely. TFSA contributions can be made all year, not to be confused with RRSP contributions which have to be made by the 60th day of the year to qualify for the current income tax filing deadline. If you were able to maximize your contributions, you have been allowed to contribute a total of $46,500.

Banks may lead you to believe that the TFSA is a bank account, earning a low account interest, but the fact is that the TFSA investments can be made in GICs, individual stocks, ETFs, bonds or mutual funds.

Typically, some mutual funds and stocks that pay dividends will earn more than a GIC at current interest rates. Even though dividends and capital gains are taxed more favorably than GIC interest, it may be more beneficial to hold investments with these types of earnings in your TFSA.

So, which is better for your situation – a RRSP (registered retirement savings plan) or a TFSA? A general rule is if your tax rate will be the same or higher in retirement than currently, using an RRSP isn’t as attractive an option for you, but it really does depend on your specifics: current income & tax bracket, income expected in retirement & tax bracket.

In some cases it might even make sense to pull money out of a RRSP and invest it in a TFSA. If you have a lower income for a year or two, aren’t drawing CPP or OAS yet and haven’t converted your RRSP to a RRIF, it is a viable strategy.

Some people use their TFSA as a savings vehicle for an upcoming holiday or a large purchase, or an emergency fund. Do not use the account as a savings account with multiple withdrawals a year – it becomes difficult to monitor, and, although the government will allow you to re-contribute the withdrawal amounts there are restrictions.

The funds cannot be replaced until the following year or quite substantial penalties of 1% per month for the over contributed amount is applicable.

If you have a choice, timing withdrawals towards the end of the year are best since you can replace the funds as early as January 2 the following year.

Please contact me if you have any questions or with a topic you would like addressed in a future article.

 

Carol Plaisier ThumbnailCarol Plaisier, CFP®, FMA, AMP | Investment and Insurance Advisor
HollisWealth | a division of Scotia Capital Inc. |  HollisWealth Insurance Agency Ltd.
174 Morison Ave., P.O. Box 1391
Parksville, BC  V9P 2H3
T 250.248.2399   F 250.248.2998
carol.plaisier@holliswealth.com          www.carolplaisier.com

 

 

This article was prepared solely by Carol Plaisier who is a registered representative of HollisWealth® (a division of
Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory
Organization of Canada). Brokerage services provided by HollisWealth are provided through Scotia Capital Inc.
Insurance products provided by HollisWealth Insurance Agency Ltd. The views and opinions, including any
recommendations, expressed in this article are those of Carol Plaisier alone and not those of HollisWealth.®Registered Trademark of The Bank of Nova Scotia, used under license.

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