Tax-Free Savings Account... Good?

[albertGQ]

Originally Posted by Slava

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.

Liquidity is one of the reasons its in ING, but the bigger reason is that this is short term investments. I don't really want my short term investments to be too volatile. ING does offer 3%. I know that's not alot, but it is pretty good for a high-interest savings account. I know mutual funds and stocks are never locked in. I

MG, I see where you're coming from when you are against an EF, but I may or may not be changing jobs soon, so I do think that I do need an EF. This may be my only source of cash if I'm "between jobs". In my current situation, I think I do need an EF. GF is also on maternity leave so her income is very limited.

[I-Hate-Hulse]

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.

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.

So I totally see what you're saying - that the opportunity cost of having good old cash lying around and not doing anything is too much. That said, I think some users here should really, really have to look at some of the underlying factors before someone adopts this.

I guess it'd come down to how quick can you recover from an "emergency". If you have alternative equities you can sell, or you think you could find a job in a month or three then there's definately merit in what you're saying.

Personally, I'd psychologically hate it if I was laid off, wasn't quite sure how long it'd take to get back on my feet, and have to start borrowing money, lighting that fuse of debt for which it's only so long. (I'm paranoid, I have both an EF (about 3 months worth) and a LoC.

I do intend to use this TFSA account just to hold some of the cash & cash equivalents portion of my portfolio. At $5,000 right now there's not a whole lot that can be done with it. Admittedly, I often have more than I should in cash and equivalents - since I'm relatively young there's no shortage of things to save up for (trips, furniture, etc). These usually take about about 8 months for me to do so the money is not often patient money so a cash account seems to work best for me.

Though I'm open to suggestions - know a good ETF to pop in and out of that has as low a risk as a money market and can beat the 3-3.5% return of your average MM fund?

[Eric Vail]

Can anyone answer this?

My RRSP space, if not used in one year, can be accessed several years later. In other words, I do not lose the space if I don't use it in the year that it was earned.

Can the same be said about the Tax-free savings account? If I don't use my $5000 this year or next, can I turn around in three years time and have $15,000 in space to fill?

[pepper24]

Originally Posted by Eric Vail

Can anyone answer this?

My RRSP space, if not used in one year, can be accessed several years later. In other words, I do not lose the space if I don't use it in the year that it was earned.

Can the same be said about the Tax-free savings account? If I don't use my $5000 this year or next, can I turn around in three years time and have $15,000 in space to fill?

Yep.

[MoneyGuy]

Originally Posted by I-Hate-Hulse

So I totally see what you're saying - that the opportunity cost of having good old cash lying around and not doing anything is too much. That said, I think some users here should really, really have to look at some of the underlying factors before someone adopts this.

I guess it'd come down to how quick can you recover from an "emergency". If you have alternative equities you can sell, or you think you could find a job in a month or three then there's definately merit in what you're saying.

Personally, I'd psychologically hate it if I was laid off, wasn't quite sure how long it'd take to get back on my feet, and have to start borrowing money, lighting that fuse of debt for which it's only so long. (I'm paranoid, I have both an EF (about 3 months worth) and a LoC.

I do intend to use this TFSA account just to hold some of the cash & cash equivalents portion of my portfolio. At $5,000 right now there's not a whole lot that can be done with it. Admittedly, I often have more than I should in cash and equivalents - since I'm relatively young there's no shortage of things to save up for (trips, furniture, etc). These usually take about about 8 months for me to do so the money is not often patient money so a cash account seems to work best for me.

Though I'm open to suggestions - know a good ETF to pop in and out of that has as low a risk as a money market and can beat the 3-3.5% return of your average MM fund?

I absolutely agree. That's why I said it depends on each individual situation. I have clients who tell me if they were laid off on Friday they'd be working again on Monday somewhere else. Know what, I've seen it happen time and time again. I have one guy who said this and when he lost his job he got another within a few days and increased his salary. It's important that people do this assessment honestly and not deceive themselves or me.

MM funds are not getting 3-3.5%. It's closer to half that ROR. ETFs are not as conservative as MM funds. You could look at a balanced ETF or mutual fund with very low volatility, but they are risker than MM funds. MM funds are crap right now. I'd go with a combination of GICs and high-interest savings accounts instead, or go a bit more aggressive with a very conservation ETF or mutual fund.

[I-Hate-Hulse]

Originally Posted by MoneyGuy

MM funds are not getting 3-3.5%. It's closer to half that ROR. ETFs are not as conservative as MM funds. You could look at a balanced ETF or mutual fund with very low volatility, but they are risker than MM funds. MM funds are crap right now. I'd go with a combination of GICs and high-interest savings accounts instead, or go a bit more aggressive with a very conservation ETF or mutual fund.

Was doing some prowling on Globefund and found these MM funds that seems to be returning some decent returns:

RBC Canadian Money Market GIF: 4.29%
Manulife ML Elite Money Market: 3.79

These are just the bigger bank funds. About 12 or so at 3.50% or above. Pretty good for the practically zero risk involved. Would I take a 4.29% return for the next 12 months? Definately for the risk involved.

Now to take the $25,000 @ 0% for 15 months I got from a credit card and plow it into one of these (Non TFSA of course)...easy money.

EDIT: the Manulife fund seems to be a no load fund, not sure about RBC, nor can I find their fund to buy on TD WebBroker. I'm thinking it can only be bought through RBC?

[pepper24]

Originally Posted by I-Hate-Hulse

Was doing some prowling on Globefund and found these MM funds that seems to be returning some decent returns:

RBC Canadian Money Market GIF: 4.29%
Manulife ML Elite Money Market: 3.79

These are just the bigger bank funds. About 12 or so at 3.50% or above. Pretty good for the practically zero risk involved. Would I take a 4.29% return for the next 12 months? Definately for the risk involved.

Now to take the $25,000 @ 0% for 15 months I got from a credit card and plow it into one of these (Non TFSA of course)...easy money.

EDIT: the Manulife fund seems to be a no load fund, not sure about RBC, nor can I find their fund to buy on TD WebBroker. I'm thinking it can only be bought through RBC?

I'd also look at the minimum that you can invest. Some can be very high.

[I-Hate-Hulse]

I think it was $5,000 on the Manulife fund.

RedFlagDeals has a great comparison of the TFSA Savings and Investment accounts, showing fees and features. I guess Waterhouse's fees are not that far off of the pack.

http://www.redflagdeals.com/deals/ma...ts_comparison/

[MJK]

Are there any Credit Cards available in Canada that offer no fees and 0% interest for 12 months or something like that?

[MoneyGuy]

Originally Posted by I-Hate-Hulse

Was doing some prowling on Globefund and found these MM funds that seems to be returning some decent returns:

RBC Canadian Money Market GIF: 4.29%
Manulife ML Elite Money Market: 3.79

These are just the bigger bank funds. About 12 or so at 3.50% or above. Pretty good for the practically zero risk involved. Would I take a 4.29% return for the next 12 months? Definately for the risk involved.

Now to take the $25,000 @ 0% for 15 months I got from a credit card and plow it into one of these (Non TFSA of course)...easy money.

EDIT: the Manulife fund seems to be a no load fund, not sure about RBC, nor can I find their fund to buy on TD WebBroker. I'm thinking it can only be bought through RBC?

I'll eat the mouse on my computer if you get those RORs now. Well, it is a laptop and has no mouse, but the point is that MM returns now are pitiful (around 2% or a little better from what I've seen). I have noticed in the past that some of them give a bit better returns and I don't know how they can do it. Five-year GIC rates right now are just over 4%! How can a MMMF beat that?

RBC funds can be sold by non-RBC "advisors." Maybe not all of them, but some can.

[Clarkey]

How does the TFSA work for day trading? For fun I like to play the high's and low's a bit, meaning I buy and sell stocks like Suncor for minor gains every week or so. I suppose if I buy $5000 of Suncor and sell it a week later for $5200, when I go to buy again I can only reinvest the $5000?

If this is the case I'll have to see if I can easily transfer that $200 gain to my non-TSFA trading account to continue investing the gain.

[MoneyGuy]

^ No, the limit is on what you can put into the TFSA. If you grow it, you can do reinvest any of it as you see fit. If $5,000 grows to $5200 (or $6,000), you can reinvest that as you see fit. The only problem you may have is whether the institution you're with is set up for TFSAs. This has to be registered as a TFSA.

[You Need a Thneed]

Originally Posted by Clarkey

How does the TFSA work for day trading? For fun I like to play the high's and low's a bit, meaning I buy and sell stocks like Suncor for minor gains every week or so. I suppose if I buy $5000 of Suncor and sell it a week later for $5200, when I go to buy again I can only reinvest the $5000?

If this is the case I'll have to see if I can easily transfer that $200 gain to my non-TSFA trading account to continue investing the gain.

I just got my TFSA started (and purchased my first stock this morning), you can put in the $5000 into your cash acct within the TFSA, then invest out of there. You only can't put money back into the acct until next year if you withdraw it out of the TFSA.

However, you can't take the $5200 out of your TFSA account to do something else with it, and then deposit it again the same year. Well, you can, you just pay 1% per month "penalty."

You can, however, take the $200 profit out, keep the $5000 in, keep investing that $5000, and keep pulling out any further profit. There doesn't appear to be any fee the withdraw out of the TFSA (at least at my bank). If you withdraw $200 five times during the year, your contribution limit for next year goes up by $1000 (5 x $200). So, next year, you would then have the $5000 base limit, plus the $1000, for a total of $6000. If next year, you only contribute $2000, and withdraw another $1000 worth of profit, your contribution limit for the year after that would be $9000 ($5000 base + $3000 unused + $1000 in withdrawals).

The unused contribution amount carries over indefinately. So, if you open a TFSA today, but never put any money into it, ten years from now, you can contribute $50,000 that year.

If you invest $5000 today in some stock that increases tenfold, and you then withdraw that $50,000, your contribution limit for next year becomes $55,000.

[Slava]

Originally Posted by You Need a Thneed

I just got my TFSA started (and purchased my first stock this morning), you can put in the $5000 into your cash acct within the TFSA, then invest out of there. You only can't put money back into the acct until next year if you withdraw it out of the TFSA.

However, you can't take the $5200 out of your TFSA account to do something else with it, and then deposit it again the same year. Well, you can, you just pay 1% per month "penalty."

You can, however, take the $200 profit out, keep the $5000 in, keep investing that $5000, and keep pulling out any further profit. There doesn't appear to be any fee the withdraw out of the TFSA (at least at my bank). If you withdraw $200 five times during the year, your contribution limit for next year goes up by $1000 (5 x $200). So, next year, you would then have the $5000 base limit, plus the $1000, for a total of $6000. If next year, you only contribute $2000, and withdraw another $1000 worth of profit, your contribution limit for the year after that would be $9000 ($5000 base + $3000 unused + $1000 in withdrawals).

The unused contribution amount carries over indefinately. So, if you open a TFSA today, but never put any money into it, ten years from now, you can contribute $50,000 that year.

If you invest $5000 today in some stock that increases tenfold, and you then withdraw that $50,000, your contribution limit for next year becomes $55,000.

That doesn't sound right at all? I will look further into this, but I think that you get the $5k/year whether you take the money out or not, and it doesn't increase based on your gains...

As a sort of similar precaution though you might not want to pull out your gains every time. That defeats the compounding aspect that you will want.

[You Need a Thneed]

Originally Posted by Slava

That doesn't sound right at all? I will look further into this, but I think that you get the $5k/year whether you take the money out or not, and it doesn't increase based on your gains...

What I've read states that any amount that you withdraw gets added to your contribution room the next year - along with any unused contribution amount for the year before.

Read the fifth line of "how the TFSA works"

[maverickstruth]

Originally Posted by Slava

That doesn't sound right at all? I will look further into this, but I think that you get the $5k/year whether you take the money out or not, and it doesn't increase based on your gains...

From the same link that Thneed posted:

Full Flexibility to Withdraw and Re-contribute
Gillian saves $3,000 a year for 10 years in a TFSA. She decides to start a small business and withdraws $40,000 of her TFSA savings, tax-free. Later, Gillian decides to re-contribute the $40,000 to her TFSA. She may do so without reducing her other available contribution room.

Note that $3000/a for 10 years is $30,000. The other 10,000 in the example would be gains, which our fictional Gillian can recontribute and not affect her contribution room available (from carryforward, etc.)

That's my understanding, at least -- same as Thneed's.

[Slava]

Looks like you guys are right. That seems pretty crazy, and a huge advantage, specifically when the markets are as low as they are!

[Prototype]

I don't think that's right. The $5000 is contribution room. You can always take out the dividends, but $3000 per year leaves $2000 (x10 years = $20,000). That calandar year I don't think they can re-contribute the $40,000 without the other $20,000 being taxed. But the next year after the withdraw, I think they can do the $40,000.

[You Need a Thneed]

Originally Posted by Prototype

I don't think that's right. The $5000 is contribution room. You can always take out the dividends, but $3000 per year leaves $2000 (x10 years = $20,000). That calandar year I don't think they can re-contribute the $40,000 without the other $20,000 being taxed. But the next year after the withdraw, I think they can do the $40,000.

That's why it says "Later, she decides to...". Later in this case, has to be the year following.

[Clarkey]

So the $5000 and any gains that come from that can be re-invested as long as it is all contained within my registered TFSA?

So within 2009, if I invest $5000 that turns into $10,000, sell that and then buy back $10,000 worth of stock then sell it for $15,000, and reinvest... and so on this is all capital gains tax free?