Personal Finance

Starting TFSA Contributions

  • Last Updated:
  • May 7th, 2015 12:23 pm
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[OP]
Member
Mar 14, 2015
242 posts
25 upvotes
Winnipeg, MB

Starting TFSA Contributions

I haven't contributed before, I have 41k of space since I haven't put in a penny yet.

It'll take me a while to max that out as I don't have the cash sitting around to dump in to an account. I do have a number of short term goals, so I want to have it accessible, so I'm putting most of it into a regular Savings Acct TFSA.
Would it be a good idea to put another small amount away monthly into a TFSA Mutual Fund (Tangerine) to start saving for some more long term goals? I have a pension at work so I'm not contributing to an RRSP yet until my student tax credits are done being used.
5 replies
Deal Addict
Jan 2, 2015
1633 posts
638 upvotes
Toronto, ON
If you make lots of interest and don't spend most of your savings account, a TFSA is a good idea. For instance, if you made $1000 of interest and had to pay tax on all that, it's a good idea, whereas if you got $100, it's not as big a deal. The higher your marginal tax rate, the more important a TFSA is.

Of course, TFSAs are really good for mutual funds and other investments that can make a lot more money. If you're putting a lot of that kind of thing in a TFSA, you should leave your savings account in a regular and safe non-registered account.
[OP]
Member
Mar 14, 2015
242 posts
25 upvotes
Winnipeg, MB
FoFai2015 wrote: If you make lots of interest and don't spend most of your savings account, a TFSA is a good idea. For instance, if you made $1000 of interest and had to pay tax on all that, it's a good idea, whereas if you got $100, it's not as big a deal. The higher your marginal tax rate, the more important a TFSA is.

Of course, TFSAs are really good for mutual funds and other investments that can make a lot more money. If you're putting a lot of that kind of thing in a TFSA, you should leave your savings account in a regular and safe non-registered account.
I wont even be close to maxing it out any time soon, so I see no reason to use a regular non-registered account til I've maxed out the TFSA. When I eventually reach my contribution limit I'll start contributing to a regular savings and transition my regular TFSA into my mutual funds assuming I don't have any close need for them. I feel like the strategy I was thinking of using makes more sense to me than what you're suggesting unless I am missing something
Sr. Member
Feb 10, 2015
607 posts
228 upvotes
MRIGuy wrote: I wont even be close to maxing it out any time soon, so I see no reason to use a regular non-registered account til I've maxed out the TFSA. When I eventually reach my contribution limit I'll start contributing to a regular savings and transition my regular TFSA into my mutual funds assuming I don't have any close need for them. I feel like the strategy I was thinking of using makes more sense to me than what you're suggesting unless I am missing something
You are correct, your way is slightly more advantageous.

All he was saying is that if you use your TFSA like a regular savings account the tax benefits will be minimal whereas if you use your TFSA for higher yield investments the tax savings can be significant.
Deal Addict
User avatar
Oct 9, 2005
1105 posts
382 upvotes
Toronto
Project out your short term goals and your monthly savings to see how much you can put into riskier investments than cash/GIC. Example:

- Have 15k saved up (outside of emergency fund: other cash, LOC, credit cards, family, etc.)
- Saving 1k (pre-tax) a month from salary in a stable job.
- Rest of salary handles living expenses.
- No tax obligations for a couple of years at least.

2015 Jul: 1k on new stuff for the home
2015 Dec: 10k on used car
2016 Jul: 5k on a great vacation
2016 Dec: 2k for more stuff

The 1k spending in July can easily be handled by the May/June (2k) savings, but 5 months and 5k new savings later is the 10k for the car, with 6k of new savings to put towards it. So, I'd ensure 4k of the current 15k savings is safe and liquid. The vacation and 2016 Xmas shopping is covered by monthly savings (and then some). Thus, I'd be willing to put 11k of the current 15k savings into equities.

Also, you can contribute to your RRSP without making a deduction until future tax years (say when your education credits are all used up) up to your unused contribution room + 2k. That said, with so much unused TFSA room and being a young investor getting started with a long time horizon, TFSA is a better bet to lean towards. Ideally, you can max both, and most people should if they can.
Intricated
Member
Jan 6, 2008
295 posts
48 upvotes
Here are my suggestions:
1. Contribute into your TFSA and max that out before anything else if you are using post tax dollars to contribute. There are NO DOWNSIDES to using the TFSA - it's one of the only tax shelters that offers you complete flexibility to contribute and withdraw (to the limit ofcourse).
2. If you have short term needs for your TFSA fund, leave it in a savings account (< 1yr savings, >1 yr potentially GICs or Bonds)
3. If you don't have short term needs, and contributing in small chunks, consider a no load mutual fund.
4. If you have a big chunk then you can "trade", long term hold ETF or other stock, etc

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