Starting in 2009, Canadians had a new investment mechanism to tinker with called Tax Free Savings Accounts . Since 2008, Gordon Pape has been trying to educate Canadians about the varied and intriguing opportunities these accounts offer through his books. His How TFSAs Can Make You Rich is his third book on the topic. I’ve read each of them and from each I’ve learned a bit more. Here’s my review and a few TFSA tips from Mr. Pape.
What’s Good About How TFSAs Can Make You Rich
This is a great book for reading in short bursts while waiting for hockey practice to end, while riding the train to work, or during that glorious 15-minutes a week that you get to do what *you* want.
It’s divided into compact chapters with clear titles so you can skip ahead if that’s what you want or need.
It also includes a chapter of real questions from readers with their answers. For those of us who like reading Financial Facelifts and Portfolio Makeovers, these tantalizing glimpses into the finances and devious minds of others have a special appeal.
Gordon Pape knows that many of us have questions like “should I save for my first home in my TFSA or my RRSP?” He tries to answer them in this book. For questions that have no one “correct” answer, he points out factors to consider.
TFSA Tips from How TFSAs Can Make You Rich
Here are a few facts I found interesting and worth noting in the book.
TFSAs can be used as collateral for loans provided the financial institution is willing. For example, if your TFSA money is locked up in 5-year term GICs (Please see: Can I Cash my GIC Whenever I Want?) the bank that issued the GICs might allow you to use those certificates as collateral for a short-term loan.
In provinces and the territories where a person cannot legally open a TFSA until they turn 19 years of age, the contribution room still begins accumulating at 18. So at 19, the person can contribute $(5000+5500) = $10,500 or $11,000 in the first year if they turn 19 in 2013 or 2014. (Please click to check your maximum TFSA contribution limit if you’ve never made a contribution. )
TFSAs are a “cheap and simple tax shelter” for Canadians over 71. When the youngest spouse in a relationship reaches 71, neither of the couple can contribute to a RRSP or a spousal RRSP any longer. Based on a CRA schedule, they will have to start taking money out of their RRIF (if they set one up) and pay taxes on it. If they don’t need to spend the money they withdraw, after paying the tax, they can invest the balance in their TFSA if they have contribution room available. The new investment growth of that money will not be taxed.
If you have a spouse (married or common law), that person should be designated as the Successor Holder to your TFSA, not as the Beneficiary. This will ensure that probate fees are not payable on the TFSA holdings if you die; It also allows your spouse to simply keep and use your TFSA as if it were his or her own. (A Beneficiary has to withdraw the assets from a TFSA. They don’t pay any tax on the investment earnings in the TFSA prior to the person’s death, but they do have to pay taxes on anything the investments earn after the person’s death. [Please see Get Ready to Die: Beneficiary and Successor Account Holder Forms for your Online Brokerage Accounts for more info on Successor Holders and Beneficiaries.]
Here’s Other Questions Answered in TFSAs Can Make You Rich
- If you borrow money to invest in a TFSA can you claim the interest on the loan as a tax deduction?
- Can you “sell” or “rent” your TFSA room to someone with more money than you so they can invest tax-free until you need the space?
If you want to know the answers or want a great explanation of how TFSAs work and how you can make them work for you, buy the book! (Or look for it at your public library.)
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Did you read this, or Gordon Pape’s earlier books, on TFSA investing? Please share your opinions with a comment.