TFSA: Is it worth it for you?
What is a TFSA, or a TSFA as my mother incorrectly calls it? It stands for Tax-Free Savings Account. If you are not careful this thing could end up costing you more than you'll ever gain. This savings vehicle was introduced by the government in 2009 with a maximum contribution room of $5000 for that year. Each year we've been allotted another amount. The maximums have changed over the years and now the total contribution room has grown to $46,500. This carries forward from year to year until you use it.
The Big Idea Here:
There is no Tax deduction or bonus for putting money in, but once in, there isn't any tax payable on any growth that occurs on your money inside the account. Unlike with RRSPs, when you withdraw money out of your TFSA you are not taxed. The government designed these accounts to encourage Canadians to save more money! Consider this: If you do not have any growth on the money in the account then it's purpose has been defeated. The tax that you would owe on no growth is zip, zero, nada so you might as well use your additional savings to pay down your mortgage, at least you will be saving interest charges. Most people with bank held TFSAs have their money invested in what is deceitfully termed a "High-Interest Savings Account". Ha! That's bank marketing genius folks! Don't fall for it! Those accounts are currently paying 0.55% which means on a $10,000 deposit you will make a whopping $55/year. Pointless!! There are better investments for you than that. Talk to us!
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The Greedy Banks:
As of this year many of the banks are charging you for having the dang thing. Talk about adding insult to injury. They want you to open one of these accounts - charge you an annual fee for having it - put you a lousy low-interest bearing investment - and then charge you if you want to take your money out of it. It's a lose-lose-lose for you and a win-win-win-win for the banks (they get 4 wins because they are taking your money and loaning it to others and making 3% or so). If you are not making money on your money there isn't any advantage to having a TFSA. Remember: you have to make your money work for you.
What we see regularly:
In our first meeting with clients, we are seeing that many people do have a TFSA at their bank. They usually don't know what it is or how it works or, worst of all, what it's invested in. The TFSA is an awesome savings vehicle and you should use it to your full advantage, not the banks. We have TFSA's in our practice, and there is no annual account fee and no fee if you want to leave us - which you won't :-). Oh ya, and we had some pretty sweet returns in 2016.
Be Informed and stay informed, after all, it is your money! Complete the form below if you have a question or a request.
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Your Trusted Advisors,
Willis & Nancy
