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.