Newsflash: Conservatives on probation

Beware, Conservatives! You are on probation.

You have to give credit to the Conservatives for finding a budget that the Liberals are willing to support. You have to give credit to the Liberals for giving, at least, the impression that it was exactly on their terms. You have to give credit to the New Democrats for giving voters the avenue of opposition.

Regardless of our stance on the issues and the actual details of the budget, our parliamentary democracy, which a short time ago seemed seriously handicapped, has started to look effective again.

Hear ye! Hear ye! Parliament is finally in session.

Open a Tax-Free Savings Account! -- Part 4

Today, we'll close with reviewing the final method you can use a Tax-Free Savings Account: Opening a Self-Directed TFSA.

Self-Directed TFSA --

Opening a self-directed TFSA is basically do-it-yourself investing within a Tax-Free Savings Account. You can even employ a passive management strategy through investing in ETFs.

Now, some of the largest tax-free savings for Canadians will come in the capital gains made through investing in equities. The downside, however, is that you can't write-off your capital losses. So, speculative investments while having a greater degree of upside will also bring the potential for greater losses because of no tax write-off.

Again, you can always invest through the brokerage of the bank you work with. However, our concern is that brokerage fees will be included in this $5000 amount. Fees, while always important, make more of a difference because paying too much will lower your contribution room. Furthermore, again, be particularly careful about administrative fees.

The discount brokerage we recommend is Questrade. Their trading fees are incredibly low at $4.95 to $9.95/trade. Generally, such low prices come with a minimum portfolio size or making a certain number of trades in a quarter. This isn't the case with Questrade. In the interest of full disclosure, our support has led to us to becoming an affiliate of theirs. If you do sign up, place "gatsby786" as an Affiliate ID will get you a $50 rebate after your first 10 trades. Only sign up with Questrade, though, if you intend to invest....they give you 0% for cash in your account. Terrible value.

http://www.questrade.com/trading/tax_free.aspx

It is important to note: If a do-it-yourselfer, though, you cannot short sell, buy on margin or exceed level 2 of option trading (no naked options or no spreads) with a TFSA. This shouldn't be a hinderance to most of you.
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In conclusion:

With these three main programs (Savings TFSA, Mutual Fund TFSA and Self-Directed TFSA), you can pretty much invest anything as you would your RRSPs or a non-registered account. You're charged nothing for withdrawals, and you don't have to make withdrawals by a specific date.

It's important to note that you can have TFSAs in more than place. For example, this year you can have $3000 at PC Financial (for your interest income) and $2000 at Questrade (for your do-it-yourself investing). Your contribution limit for your Tax Free Savings Account is monitored by the CRA (Canada Revenue Agency) themselves. Theoretically, you could open an account and deposit $10,000 ($5000 over the limit this year), but you would face a 1% penalty. You can open up an TFSA in 6 different places and deposit how ever much you like. Nobody would care (well, I would hope your banker would be nice enough to tell you). The key is keeping track of your contribution room.

Hope that helps....Surely more thoughts and comments will follow as the life of this brilliant new savings vehicle goes on.

Open a Tax-Free Savings Account! -- Part 3

Okay, in the previous posts we did a brief overview of TFSAs and the best Savings TFSAs out there. In this post, we're going to cover one of the methods of having an Investment TFSAs: Mutual Fund TFSA.

Mutual Fund TFSA:
If you want to invest in mutual funds, your bank will have a decent program, and you can use their bank-owned no-load funds. As they are no-load funds, you won't be charged going in, and it is key to keep your fees to a minimum as they'll be included in the $5000 limit.

Fees for TFSA SHOULD be none! Watch out for administrative and withdrawal fees. TD has such fees unless you sign up for eServices. If TD is your bank, sign up for eServices. Don't pay the fees. The only fee you can tolerate paying are transfer fees. With the exception of BMO, virtually all the shops charges a transfer fee if you're transfering accounts to another firm.

It is curious to note that CIBC will not have Investment TFSAs until April. This is a whopping delay considering everybody else has some sort of program.

The one thing to be stressed is do not let them charge you administrative or withdrawal fees of any sort. There is more likely to be such administrative fees on the bank's brokerage accounts, so verify if this is the case. Especially in the early years of the TFSA, your little bit in tax savings should not be offset paying such fees.

Open a Tax-Free Savings Account! -- Part 2

Now, Onus has done some homework about which TFSA is the best, and the answer lies in what you want to do. Generally, there are currently three different ways to open up a Tax-Free Savings Account. We'll be going through the Savings TFSA today.

A Savings TFSA is simply a place to save your cash with no wish to invest. For this method, you want to find an investment savings account that pays the highest interest rate while allowing your capital to be liquid. One of the beauties of the Tax-Free Savings Account is its ability to remain tax-free if withdrawn. Locking yourself into a GIC eliminates this advantage for a certain period. It is important to note that a couple of the Banking Representatives immediately suggested their GICs as a way to increase the rate of return. You'll probably note that some of these rates beat the GIC rates of most banks (with the exception of some of the longer-term ones).

See our breakdown of the rates of return below...keep in mind, these are variable rates and subject to change.

PC Financial Tax-Free Interest Plus Savings Account 3.75%/year
HSBC Direct TFSA 3.75%
CIBC Savings TFSA 3.0%
BMO Savings TFSA 2.75%
ING Savings TFSA 2.7%
Scotia Savings TFSA 1.75%
TD Savings TFSA 1.75%
RBC Savings (that option was not available we were told...we would have to invest in GICs)...However, Ellen Roseman posted a 2.5% for RBC in her Toronto Star article, "Still Time for Tax-Free Savings Accounts," which makes more sense.

If you're not looking to invest and simply to save your money, your answer is some sort of investment savings account. Both PC Financial and HSBC deliver.

Learn about the Investment TFSAs in our next post!

Open a Tax-Free Savings Account! -- Part 1

Alright, people...It's time! Go out and get a Tax Free Savings Account. Now! Go Go Go...

If you're 18 or over, a Canadian resident can invest $5000 each year in the account and allow its holdings to grow tax free. Keep in mind, each year...so the first year you have $5000...next year, you have $10,000...the year after, you have $15,000... and so on.

While there is no upfront tax reduction for putting money into a TFSA, your investments won't be taxed, so this means your capital gains, dividend yields and interest income are protected. However, it also means your capital losses can't be written off. Furthermore, you won't be taxed when withdrawing your money from the account, and there is no requirement to make withdrawals by a certain age.

Now, I've been telling friends and family informally to sign up for one, and the general retort goes something like this: "The most a high-income taxpayer in Ontario would save on a $5000 deposit is $115 in tax if he or she earned a 5% interest rate. Who cares about a measly $115?"

Yes, this is not an overwhelming amount of money...But, assuming $115 means nothing to you, you need to think long-term. If the maximum contributed for 10 years, assuming no growth and a 5% return, no taxes are due on $2500 of investment income, which means $1150 for that year! And it continues to the next year ($1265)...and the next year (you get the point)...absolutely marvelous!

Now, you might not have a need as you may not have savings or investments. However, your parents or your spouse might, and there's nothing saying they can't use your room. Additionally, the contribution room won't go away, so it won't hurt to at least have an account (provided they don't charge you annual fees).

People, People, People...You're looking at the greatest savings vehicle since the RRSP. Don't ignore a great thing!

Which Tax Free Savings Account is the best? Stay tuned for our next post!