Tax-Free Savings Account... Good?

[MoneyGuy]

Originally Posted by Nancy

Do withdrawals from RRSP's affect one's OAS eligibility? Would this be another benefit of the TFSA for very low income earners? (Versus the RRSP.)

Yes they do. The article I posted makes that point. This onlyi happens at high income levels. It's around mid-60s of income so doesn't affect the average taxpayer.

[Ryan Coke]

Can I just clarify how the regained room works when you withdraw?

If I put 5k in on Jan 1, and the stock doubles in price and I withdraw 5 of the 10 k I have in there, can I still put 5 k more in that year?

So I can always re-contribute an amount equal to what I have withdrawn up to the rolled over max (5k per year X how ever many years you are eligible for)?

Also, is you contribution room per calendar year, or is it the anniversary date of when you open an account?

Thanks in advance.

[czure32]

Originally Posted by Ryan Coke

Can I just clarify how the regained room works when you withdraw?

If I put 5k in on Jan 1, and the stock doubles in price and I withdraw 5 of the 10 k I have in there, can I still put 5 k more in that year?

So I can always re-contribute an amount equal to what I have withdrawn up to the rolled over max (5k per year X how ever many years you are eligible for)?

Also, is you contribution room per calendar year, or is it the anniversary date of when you open an account?

Thanks in advance.

contribution room is per calendar year, and when you make a withdrawal from the TFSA, you wont gain the contribution room back until the following year

[I-Hate-Hulse]

So I set up one of these at Waterhouse (vs just a TD account) as I figure in a few years time I could use this account for stocks, bonds and what not. The Waterhouse account gives me access to these types of equities, whereas the plain jane TFSA at a Bank is pretty much just high interest savings.

However, FYI to all - Waterhouse has some stiff transaction fees:

Partial Withdrawal - (1st partial in a year is free, this is for subsequent ones): $25
Termination / Transfer Fee: $125
Partial Transfer Fee: $25
Swap Fee: $45

Brutal fees IMHO, I need to do some research here into what precisely is the swap fee.... I'm hoping they get enough flak they changes these fees.

[MoneyGuy]

Originally Posted by I-Hate-Hulse

So I set up one of these at Waterhouse (vs just a TD account) as I figure in a few years time I could use this account for stocks, bonds and what not. The Waterhouse account gives me access to these types of equities, whereas the plain jane TFSA at a Bank is pretty much just high interest savings.

However, FYI to all - Waterhouse has some stiff transaction fees:

Partial Withdrawal - (1st partial in a year is free, this is for subsequent ones): $25
Termination / Transfer Fee: $125
Partial Transfer Fee: $25
Swap Fee: $45

Brutal fees IMHO, I need to do some research here into what precisely is the swap fee.... I'm hoping they get enough flak they changes these fees.

I feel there should be no fees to set up an account. When you trade stocks, yes, but not for the account itself. Most institutions don't charge for this.

[Locke]

Originally Posted by I-Hate-Hulse

So I set up one of these at Waterhouse (vs just a TD account) as I figure in a few years time I could use this account for stocks, bonds and what not. The Waterhouse account gives me access to these types of equities, whereas the plain jane TFSA at a Bank is pretty much just high interest savings.

However, FYI to all - Waterhouse has some stiff transaction fees:

Partial Withdrawal - (1st partial in a year is free, this is for subsequent ones): $25
Termination / Transfer Fee: $125
Partial Transfer Fee: $25
Swap Fee: $45

Brutal fees IMHO, I need to do some research here into what precisely is the swap fee.... I'm hoping they get enough flak they changes these fees.

Those seem a little outrageous, but I imagine that some of that could be because they are trying to encourage you to keep your money in.

[albertGQ]

I opened up a TFSA with ING in November. They just gave me double interest until January 1st to pay for the taxes. Not too sure what I want to do next. Maybe just leave them in there so they're liquid for a couple years

[Slava]

Albert, clearly you should invest the monies into something better than ING at your age? They can still be liquid.

Fotze you might want to reconsider the education savings angle...IIRC you can't open these unless you are at least 18 years of age. In other words you will be using your contribution room or your wives for this?

[I-Hate-Hulse]

Originally Posted by MoneyGuy

I feel there should be no fees to set up an account. When you trade stocks, yes, but not for the account itself. Most institutions don't charge for this.

There were no fees to setup the account (although there is a $50 annual fee not unlike an RRSP admin fee, can be waived if you elect for electronic statements).

These crazy fees they are charging here are basically transaction fees. Withdraw 50% of your money and it'll cost ya $25 if it's your second or higher transaction this year.

[albertGQ]

Originally Posted by Slava

Albert, clearly you should invest the monies into something better than ING at your age? They can still be liquid.

Fotze you might want to reconsider the education savings angle...IIRC you can't open these unless you are at least 18 years of age. In other words you will be using your contribution room or your wives for this?

Well, I kind of want my TFSA as an emergency fund so wouldn't that classify as short-term? What do they say? One should have a minimum 3-6 months salary tucked away just in case? (Is that net or gross?) $5000 doesn't even come close. So I'm thinking keep putting my savings in here for a couple years and after I have my six month cushion, then put it in higher risk.

You think that is a good idea or do you think I should add more risk to it now? I've got RRSPs in pretty risking mutual funds right now, and I want to also max out my lifetime contribution room. I think that is where I'll put my risky investments until my emergency fund is built up?

What do you think?

Money Guy and Claeren, you guys can weigh in as well.

[Burninator]

Originally Posted by albertGQ

I opened up a TFSA with ING in November. They just gave me double interest until January 1st to pay for the taxes. Not too sure what I want to do next. Maybe just leave them in there so they're liquid for a couple years

I did the same thing. The $5000 generated approximately $32 in interest then they doubled it on January 1st.

[taco.vidal]

Those fees are pretty standard - theyll be comparable to fees for RRSP accounts. The fees are there for few reasons: of course the bank/investment firm wants to make money; the these accounts are registered with the government and theres a lot of record keeping that goes along with it - everytime you contribute or withdraw, the records need to be updated and slips generated for you; and lastly, the fees are there to act as incentive for you to keep your money with that particular bank/company - you wont want to withdraw or transfer if you have to pay fees.

As for a swap fee... Assume you have $5000 cash in your TSFA and you have 500 shares of a $10 stock in your margin account. You can "swap" the cash stock for the cash so the stock ends up in your TSFA and the cash in your margin account.

[czure32]

Originally Posted by I-Hate-Hulse

So I set up one of these at Waterhouse (vs just a TD account) as I figure in a few years time I could use this account for stocks, bonds and what not. The Waterhouse account gives me access to these types of equities, whereas the plain jane TFSA at a Bank is pretty much just high interest savings.

However, FYI to all - Waterhouse has some stiff transaction fees:

Partial Withdrawal - (1st partial in a year is free, this is for subsequent ones): $25
Termination / Transfer Fee: $125
Partial Transfer Fee: $25
Swap Fee: $45

Brutal fees IMHO, I need to do some research here into what precisely is the swap fee.... I'm hoping they get enough flak they changes these fees.

transfer fees are pretty standard (albeit a little high IMO), but charging for withdrawals on a TFSA is total garbage

now while the TFSA is technically a registered product, it should be considered the same as a normal "cash/nominee" account

unless TD waterhouse charges a withdrawal fee on the normal "cash" accounts this is total

[bomber317]

After thinking about it for awhile, I decided to pay down my mortgage instead of buying TFSA or RRPSs (still need to buy some to pay off my Home Buyer's Plan).

My plan for this year is to save up another lump sum payment, stick it into the TFSA to earn at minimum some interest or maybe a Dividend fund, then take it out and pay down the mortgage again.

[MoneyGuy]

Originally Posted by albertGQ

Well, I kind of want my TFSA as an emergency fund so wouldn't that classify as short-term? What do they say? One should have a minimum 3-6 months salary tucked away just in case? (Is that net or gross?) $5000 doesn't even come close. So I'm thinking keep putting my savings in here for a couple years and after I have my six month cushion, then put it in higher risk.

You think that is a good idea or do you think I should add more risk to it now? I've got RRSPs in pretty risking mutual funds right now, and I want to also max out my lifetime contribution room. I think that is where I'll put my risky investments until my emergency fund is built up?

What do you think?

Money Guy and Claeren, you guys can weigh in as well.

This may be a bit controversial, but I disagree with the standard advice of everyone having three to six months in an emergency fund. I, for example, have no emergency fund. Many of my clients don't, often on my advice. Years ago I ran into a lady I used to work with. She asked me if she should have an emergency fund. She and her hubby had $25K in a fund for 25 years, untouched. I calculated for her that they had lost tens of thousands of dollars in lost gains while the emergency fund spun its wheels. She and her hubby both had very secure jobs. Whether you have an EF and how much it should be are a factor of several factors, such as job security, personal financial situation, if you have a working spouse (also her job situation) and such.

My emergency fund is my line of credit. I don't have a "job" so no one can fire me. You may not need one either. Depending on your tax sitution, including income, you may be better off flipping your emergency fund into an RRSP.

[Phanuthier]

Originally Posted by MoneyGuy

This may be a bit controversial, but I disagree with the standard advice of everyone having three to six months in an emergency fund. I, for example, have no emergency fund. Many of my clients don't, often on my advice. Years ago I ran into a lady I used to work with. She asked me if she should have an emergency fund. She and her hubby had $25K in a fund for 25 years, untouched. I calculated for her that they had lost tens of thousands of dollars in lost gains while the emergency fund spun its wheels. She and her hubby both had very secure jobs. Whether you have an EF and how much it should be are a factor of several factors, such as job security, personal financial situation, if you have a working spouse (also her job situation) and such.

Sounds like the same advice Peter Lynch gives.

[Slava]

Originally Posted by albertGQ

Well, I kind of want my TFSA as an emergency fund so wouldn't that classify as short-term? What do they say? One should have a minimum 3-6 months salary tucked away just in case? (Is that net or gross?) $5000 doesn't even come close. So I'm thinking keep putting my savings in here for a couple years and after I have my six month cushion, then put it in higher risk.

You think that is a good idea or do you think I should add more risk to it now? I've got RRSPs in pretty risking mutual funds right now, and I want to also max out my lifetime contribution room. I think that is where I'll put my risky investments until my emergency fund is built up?

What do you think?

Money Guy and Claeren, you guys can weigh in as well.

You could always invest the money in the TFSA and and still have them liquid. If you decide that you need them down the road for emergency reasons, or something else, they are still liquid. It would be one thing if you were buying real estate or something that was hard to sell, but with most investments you can get the cash in a few days. There isn't a lot of reason to wait for the amount to build up and then invest it.

[Harmon Recoil]

Originally Posted by BerubeHater

You can trade stock in the TFSA, and there are no capital gains.

But on the other hand, any capital losses incurred cannot be deducted against capital gains earned outside of the TFSA.

[Slava]

Originally Posted by Harmon Recoil

But on the other hand, any capital losses incurred cannot be deducted against capital gains earned outside of the TFSA.

Capital losses are only good if you have gains to use them against though.

[Harmon Recoil]

Originally Posted by Slava

Capital losses are only good if you have gains to use them against though.

I know, hence was I said they are not able to be deducted against other capital gains.

It's not a major issue, but there is some risk involved if you choose to buy stocks with the TFSA.