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TFSA Tips from Gordon Pape: A Review of How TFSAs Can Make You Rich

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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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Book Review of Fight Back by Ellen Roseman

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While scanning the new titles shelf at our local library, my eye was caught by the bright red and white colour scheme of Fight Back. I enjoy reading Ellen Roseman’s column in the Star where she battles big businesses (and small) to help ensure customers get a fair deal. So I signed it out and started reading. Here’s my review.

Would I Buy This Book?

Possibly. If I wasn’t already working in a related field: Probably. Even though I’ve now read it, if someone gave me a copy as a present, I would keep it, not exchange it.

Fighting Back is a good source of information and reference and the material should be useful for several years to come.

Guest Authors Have Contributed Topics on Their Areas of Expertise

Rather than try to understand every topic in minute detail, Ms. Roseman wisely invited experts to contribute articles on very specialized areas such as dealing with Telecom companies and car leasing services.

Enlightening Anecdotes Add Interest and a Dose of Reality

Ms. Roseman draws on her extensive personal correspondence with consumers to provide examples of the problems we all face. The anecdotes make great illustrations and add humour and human interest to sometimes dry topics.

New Ideas and Topics to Consider

I expected that I would already have read most of the ideas before in her columns. I was wrong.

I came away from the book learning new things, even about old issues.

For example, I have heard people say they charge everything to a credit card so they can dispute their purchases more easily. I was a bit surprised to read in the book that most major credit cards only allow you to dispute 2 or fewer “unauthorized events in the past 12 months.”

An example of an unauthorized event from the book: A customer paid a deposit for furniture that was never delivered after being made to order because the company went bankrupt.

I found that information useful to tuck away. As with making a home insurance loss claim, I might not want to dispute a $5 credit card charge if I think I might need to dispute a $500 charge next month.

Another example: A Rental Car contract included a clause in its collision damage waiver that said it did not insure against damage caused by striking a stationary object. In other words, if you swerve to avoid a head-on collision and hit a tree instead, you could have to pay all the costs to repair the rental car yourself!

While I don’t have to worry about this type of insurance right now, I have children who may need to buy it in the future. I’ll be warning them to watch out for clauses like this one. (When I first had my licence I did not have a car, nor therefore any car insurance. I always counted on the CDW to protect me. Good thing I never had an accident: I don’t know if I had this clause in my contract or not!)

Useful Reference Information

The book includes tips and various websites to refer to while trying to solve problems. For example, there is an internet forum listed to help find the best telecomm deals for cellular/wireless phones.

Layout and Ease on the Eyes

The book is well designed.

Each topic is covered in about 2-5 pages. That’s an ideal length for reading in quick bursts—while on the subway, while waiting for a spouse to get ready, or while boiling the pasta.

The articles are grouped in logical sections as listed in the table of contents. The titles are useful not just humorous. And there is an extensive, detailed index at the back.

Drawbacks of the Book

Like all paper-printed books, one problem is changing information. For example, the book warns that Aeroplan points have an expiry date. Recently Aeroplan has removed that upsetting limitation.

In general, though, I found most of the articles written in a way that their information will still be useful even if minor changes are made to various programs and policies. In fact, it was kind of nice to realize that some improvements are actually being made thanks to people making organized complaints such as those suggested in the book.

Fight Back: 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery by Ellen Roseman, Toronto Star Columnist.

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