Thanks for joining our live chat with TFSA expert Gordon Pape, author of Tax-Free Savings Accounts: How TFSAs Can Make You Rich. Gordon, are you ready to begin?
It's great to have you here, Gordon. Our readers have started submitting their questions, so let's get to them.
We don't like them right now. They have long maturities and therefore are vulnerable to interest rate hikes. Plus the returns they offer right now are very low.
Just ask your broker to do the transaction or use a discount broker. No different from any other account.
If you can do both, great. One strategy is to make the RRSP contribution and use the refund for a TFSA.
It depends on several factors. For starters, if you expect to be in a higher tax bracket after you retire - possible if you are going into business - a TFSA is better.
Also, for lower income people who may need GIS or provincial welfare after retirement, use a TFSA
To answer James, the beauty of a TFSA is that it can be used for any investing goal you want. If long-term capital gains plus some income is the objective, your plan is fine.
But if you want to maximize the tax advantages of the TFSA, you will have to take more risk and go for growth-oriented stocks.
Problem is with interest rates so low you won't earn much on that money. You might consider a short-term GIC from a credit union or other small institution that pays better rates than the big banks.
You'll get more from stocks, but with more risk obviously.
You don't. There is no such thing as a spousal TFSA. However, you are allowed to give your wife the money to open a plan for herself. The income attribution rules will not apply as long as the money stays in the TFSA.
But if she withdraws it and reinvests it outside the plan, then the attribution rules kick in.
You are allowed to make a contribution in kind to a self-directed TFSA. But be careful. Moving winning stocks into the plan will trigger a capital gain (taxable). But you won't be able to claim a capital loss on losing stocks. Better to sell them first.
Gordon, I opened a TFSA when they were first launched, but haven't done anything with it. I've been using it as a high-interest savings account. If I want to move the money and do some investing, how difficult is it?
Swaps are not allowed - you can't exchange stocks outside a plan for a security inside the plan.
You would have to transfer it to another TFSA - don't take it out and then open a new plan and deposit it - that would be considered a new contribution.
Open a self-directed plan with a broker and then arrange for a transfer.
A high-interest savings account is not the place to keep TFSA money unless it is an emergency fund.
There will be a transfer fee - ask first. There may also be an account closing fee.
So find out the total cost before proceeding. It will vary from one institution to another.
Your RRSP will offer more contribution room. The TFSA limit this year is $5,500 (plus any carry-forwards). The RRSP is 18% of earned income to a max of around $23,000 (don't have the exact figure at hand).
However, if the lump sum is not earned income (for example if it is from an inheritance) then it won't count towards the contribution limit.
To Jason: I'm not a big fan of leveraging. You won't be able to claim a tax deduction on the interest on the loan because the investment is in a registered plan. And you are risking the equity in your home.
Unless you are a very experienced investor who fully understands the risks, I advise against it.
That's a tough one. The tax treaties in force at the time will govern the impact on the plans. Right now, for example, the US recognizes RRSPs and has special provisions for them, but not TFSAs. I'm not familiar with European rules on this.
Be careful here. Many people seem to equate TFSAs with savings accounts - perhaps because of the name. In fact they can be used for any kind of investment, if you have the right plan - stocks, bonds, eTFs, mutual funds, etc.
So don't shop exclusively for interest rates unless this is an emergency fund only. If it is, then look for the highest rate on a high-interest account - somewhere like ING, President's Choice, etc.
No. As long as the withdrawal occurred in 2012, you can contribute that amount in 2013 plus you have $5,500 in new contribution room.