To TFSA or not to TFSA, that is the question.

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TFSA’s (Tax Free Savings Accounts) can be very confusing. Let me explain how you can benefit.

I’ll preface this with the fact that I’m no longer in the business and you need to discuss your personal situation with your financial adviser.

How Does A TFSA Work?

Let’s say you are 20 years old and just started working and make $30,000 per year.  You are in a profession that it is assured your income will almost double over the next five years as you earn your stripes.

You probably have student loans with tax deductible interest and maybe even transportation costs you can deduct like a monthly bus pass in Ontario.

If you put money into your RSP, it may save you in the range of 17%.  Seems like a lot.

Family fighting over assets.Now, let’s consider the same money into a TFSA.  You are saving and accumulating gains in a non taxable way.  Five years later, you withdraw that money and add it to your RSP when you make almost twice as much and pay a higher rate of income tax.  As a result, you may have a much larger tax refund.  Then you take that tax refund and put it back into your TFSA (after the end of the calendar year).

Now that you are in the higher tax bracket, you maximize your RSP until it’s time to buy a house.  Voila!  You have your down payment!  Just remember you have to put the RSP dollars back or end up paying tax on it.

This is just the tip of the iceberg and requires professional planning.  Don’t try this at home!  See your adviser soon.

Barry

P.S.  What am I thankful for today?  I’m thankful to live in a country with so much opportunity.  I’m thankful for the gift of sight (so that I can read!).  I’m thankful for a roof over my head.

What are you thankful for today?

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