The new Tax Free Savings Account (TFSA)

[Kloubek]

ok. I heard about this before, and have read some stuff on it. But I'm still confused, because for some reason I require to be spoon fed the information.

This is what its all about, for those who want to know:


Link to Information on the TFSA

So, I understand some of the details:

You can put in up to 5G per year. If you don't put in, you can bank the space I think. If you take out, the amount you took out becomes room to put in more at a later time.
The money is not taxed.
The money you put in is NOT tax deductable.

The questions I have are these:
- I do not know how much interest this account plans to make, or whether it is based on a solid investment or market volatility.
- If it does not work as an RRSP whereas the contributions are tax deductable, then isn't that just like a regular account where you can add money and take it out at will without tax penalty?

Someone, please explain a scenario where this account is going to help me. Again, I need spoon feeding on this one. If the scenario involves investing the money into something else, I'm all ears as well.

[lint]

Originally posted by Kloubek
- If it does not work as an RRSP whereas the contributions are tax deductable, then isn't that just like a regular account where you can add money and take it out at will without tax penalty?

With a regular account, any interest, dividend or cap gain you make is tax deductible. With the TFSA, this income is not taxed.

[Kloubek]

Are you serious? So if I put in a savings" account, and make 1 percent interest on it, I'm supposed to claim that as "investment income"? I never really thought about it, as I've been pretty poor up to this point, and the 3 cents of interest I might have made didn't seem terribly important....

[Grogador]

You put in $5000 now, however you can't do any sort of tax deduction for this investment.

Down the road, you take out $20,000 and don't pay taxes on your $15,000 profit.

RRSP's are the other way around and kindof a ripoff... at least I think that's how it works, my info comes from a WFG seminar, before I ran far far away.

[Grogador]

More interesting info here like:

Because the investment income within, and withdrawals from, a TFSA will not be taxable, interest on money borrowed to invest in a TFSA will not be deductible in computing income for tax purposes.

[Kloubek]

Originally posted by Grogador


Down the road, you take out $20,000 and don't pay taxes on your $15,000 profit.

$15,000 profits from the 5g investment? Either that's some wicked interest rate, or you're planning on living to 1000 years old.

[gqmw]

Pretty much in that account you can invest it in anything you want I believe. All the money you make, you can take out tax free. That is a really good bonus. As well...if you don't have 5K to contribute say this year...and you contribute 2K, then the next year you can contribute up to 8K cause it is carried forward.

[max_boost]

Interesting. I had no idea this was in the works. I probably won't be able to utilize it until years down the road.

#1 - Max out RRSP's
#2 - Pay off house
#3 - Invest in TFSA

Investing the $5k/year isn't hard. Picking an investment where I will actually make money is.

[Redlyne_mr2]

Im so sketched about RRSP's, even if you dont get taxed on them now, they tax you when you pull them out..

[SilverRex]

Originally posted by Redlyne_mr2
Im so sketched about RRSP's, even if you dont get taxed on them now, they tax you when you pull them out..

true but the point of RRSP is that any growth or money made will not be taxed, and if you manage it well so that when you retired you withdraw in the amount within your limits, you will be able to pay minimal tax and any if at all. making RRSP completely tax avoided.

But,

RRSP has its dark side as Gov wanted you to save your own retirement, thus it will impact the amount of Gov pension you can recieve when you do retired. Its not like we are going to recieve much in 30 years so this isnst really the deciding factor for me.

I think RRSP are good for those who does not know anything about investing. its neight great nor absolutely meangingless. Its a good starting ground while you think of other forms of investment, such as saving for a 1st time home buyer or recieving a large lum sum severence when you get laid off, RRSP can help you for the moment shield you from alot of tax until you figure out what to do.



now my own delemma is RESP, knowing I can recieve up to 500/year when I deposit 2500 into it, makes it kind of worth while for my child BUT I was told from an expert that RESP is my next choice only if I can max out of RRSP. But I know right now I dont think I have the financial means to utilize both RRSP and RESP in the same year, truely a headache

[lint]

Originally posted by SilverRex
now my own delemma is RESP, knowing I can recieve up to 500/year when I deposit 2500 into it, makes it kind of worth while for my child BUT I was told from an expert that RESP is my next choice only if I can max out of RRSP. But I know right now I dont think I have the financial means to utilize both RRSP and RESP in the same year, truely a headache

What's the rational for this? Saving money in your RRSP has no bearing on funds for your child's education. One is saving for your own retirement, one is saving for yous child's education. Sounds like your expert is saying look out for yourself and let the children fend for themselves.

[TYMSMNY]

What's they're trying to say is that the deductions that you get from a RSP contribution will be more benefitial than putting it into a RESP.

It really depends on the situation though.

[lint]

Originally posted by TYMSMNY
What's they're trying to say is that the deductions that you get from a RSP contribution will be more benefitial than putting it into a RESP.

It really depends on the situation though.

Of course it is, but they aren't even in the same class of financial vehicle. IF you plan on saving for retirement AND saving for your child's education, find a balance between the two. Sacrificing one for the other when you want to do both is stupid.

[blownz]

Originally posted by SilverRex

But,

RRSP has its dark side as Gov wanted you to save your own retirement, thus it will impact the amount of Gov pension you can recieve when you do retired. Its not like we are going to recieve much in 30 years so this isnst really the deciding factor for me.

That is not true. You will collect the same amount of CPP when you retire regardless of how much income you have (I know someone collecting it while still getting a 7 figure salary). The only think it will affect is any other type of low income supplements you may otherwise qualify for.

Originally posted by lint

IF you plan on saving for retirement AND saving for your child's education, find a balance between the two. Sacrificing one for the other when you want to do both is stupid.

Finding the right balance is key imo. I put money in both RRSP's and RESP's for both of my kids. But I don't max any of them out because it just isn't feasible for me.

[Schwa]

Originally posted by blownz


That is not true. You will collect the same amount of CPP when you retire regardless of how much income you have (I know someone collecting it while still getting a 7 figure salary)

Are you sure about this? I just talked to my accountant regarding this yesterday.

My understanding is this: anyone can *collect* CPP, but when you file your taxes and it shows a 7 figure income the gov't will ask for it back.

Therefore it isn't yours.

[TYMSMNY]

"the claw"

[lint]

Originally posted by Schwa


Are you sure about this? I just talked to my accountant regarding this yesterday.

My understanding is this: anyone can *collect* CPP, but when you file your taxes and it shows a 7 figure income the gov't will ask for it back.

Therefore it isn't yours.

Are you mixing up CPP with OAS (old age security)?

[em2ab]

Originally posted by Redlyne_mr2
Im so sketched about RRSP's, even if you dont get taxed on them now, they tax you when you pull them out..

The point is you assume a lower tax bracket when you retire. You'd normally get taxed now at about 30% I imagine but instead, you put your money into RRSP. Then when you retire and pull it out, you don't have as much income and therefore get taxed maybe at 10% or whatever the low bracket is. Or if you pull less than a $8500 annual income I don't think you pay tax at all.

[Kloubek]

I think the personal non-taxable income in Alberta is something like 12g. Once I retire and all is paid for, I can definately live off that....

[Schwa]

Originally posted by lint


Are you mixing up CPP with OAS (old age security)?

I could be, let me do some research.