At Davlyn, we pride ourselves on educating our clients when we see them, but we won’t stop just there. That’s why we contributed to Hespeler magazine; to keep educating clients and non-clients alike.
We hope you enjoy our latest article: How to Fix Your TFSA Investment
On a weekly basis, I meet new clients who tell me that, yes, they do hold TFSAs. However, When I ask them what they are invested in, they look puzzled. The response I almost always get, “it’s just in a TFSA at the bank. What else is there?”
Generally speaking, the investments permitted in a TFSA are the same as those permitted in an RRSP. They include cash, mutual funds, securities listed on a designated stock exchange, GICs, bonds, certain shares of small business operations, and segregated funds.
Now, perhaps it’s appropriate for some clients to be in a TFSA at a bank, in a daily interest account, earning somewhere between one percent or less. My frustration lies in the fact that most people don’t even know there are alternative instruments in which to invest their TFSA money. It’s not all about returns, but in the last eight years (and remember, TFSAs have only been around for eight years), it wasn’t uncommon to earn high, double-digit returns.
Income earned in your TFAS is tax free. In my mind, this is wasted if the client is only getting one percent or less. Sure, no one likes paying tax, but I would rather pay tax on one percent than an investment earning considerably more.
Most people also don’t know that you can carry forward your unused contribution room from previous years. From 2009 to 2012 the maximum contribution was $5 000 per year. In 2013 the maximum contribution room was raised to $5 500, and for the 2015 only the maximum contribution room was $10 000. In 2016 the maximum contribution room returned to $5 500, where it remains today. Your TFSA could have $52 000 deposited based on the maximum contributions up to and including this year.
How do I figure out how much contribution I have? Go to: www.cra-arc.gc.ca/myaccount/
A number of our clients us TFSAs to help with their retirement planning needs. If they are fortunate enough to have a pension or sufficient funds in their RRSPs to help cover the cost of their fixed expenses in retirement, that is great. TFSAs are excellent at helping either to top this off, or to help fund the variable expenses in retirement, for example, perhaps a trip or a new car. Remember, a unique feature of TFSAs is that they can enhance your retirement cash flow without pushing you into a higher tax bracket.
Of course, not everyone uses TFSAs for retirement. We have seen many other applications for TFSAs, from funding post-secondary education, to major purchases like a down payment on a home, or even helping to cover the expenses for your child’s wedding.
I urge you to make the most of this opportunity for tax-free investing. If you need help, I would encourage you to find a local financial advisor whom you like and trust; one that can educate you on this amazing saving and investment tool.
David Reeve is a local investment advisor and president of Davlyn Financial. He can be reached at email@example.com