Who wants to pay tax when you don't have to, right?
I know I certainly do not so as soon as the clock struck midnight on December 31 I sent a message to my administrators asking them to transfer $5,000 from my non-registered accounts to my Tax-Free Savings Account (TFSA).
I really do not like the name the government gave to this tax-free haven as it's title often misrepresents the benefits. It's not a savings account, per se. It can be an investment account so that you can put any stocks, bonds or mutual funds into your TFSA and any interest income, dividends and capital gains you receive are not subject to tax! Calling it a 'savings account' has led clients to believe that you have to put the funds in a 'savings account' at the bank earning today's low rate of interest rather than use a more effective investment strategy and they tend to dismiss this strategy all together. What a missed opportunity!!!
What's even better is that if you have come into a windfall in 2011 and have not been contributing over the past 3 years you can catch up and put in $15,000 all at once! The rules are that you can contribute $5,000 per year from 2009. Unlike a RRSP you will not receive a tax deduction for your contribution but when you take the money out it isn't taxable income either (which it would be if you took it out of an RRSP). You can also replace the money you took out. Let's look at this example.
Let's say in 2009 I put in the allowable $5,000 and then again in 2010 so now I have $10,000 in the TFSA (I'm not going to add any returns for the purpose of this example). I decide I want to go on a vacation and take the money out so I take out the whole $10,000. In 2011, I win the lottery and I can put in $15,000! That would be the $5,000 amounts I am replacing for the 2009 and 2010 tax years as well as the new contribution for 2011.
Sometimes it is more important to use the TFSA for a savings vehicle rather than contributing to a RRSP!!! It can also be used as a tool for income splitting. If you want further information or clarification please feel free to comment or contact me @ kjankowski@tewealth.
Showing posts with label tax-free savings account. Show all posts
Showing posts with label tax-free savings account. Show all posts
Wednesday, January 5, 2011
Friday, October 1, 2010
Teaching Kids About Money ~ I'm not kidding!!!
It's interesting that I have been hearing a lot about how to teach kids about money. I know that when I counsel couples about budgeting I usually begin with how they think about money and what it means to them. Most of the psychological issues with money stem from our up-bringing. Typically, one person in the couple is the 'perceived' spender. I say 'percieved' because they may spend more than their partners but they can also be good savers and have a very disciplined saving and spending philosophy.
So, as parents or grandparents what can we do to ensure that we are instilling the "good" philosophies about spending money. Keep in mind that money is just paper. What we want to teach our children is the work ethic, the sense of constraint and the freedom of enjoyment in a healthy balance. That's the real lessons to be learnt.
Typically, we can start our very young off with the piggy bank and teach them how to save and how the savings add up, if not spent. I think it is important to let children spend their money, if they wish, so that lessons can be learnt about how things cost money and how we can make conscious decisions as to whether we want to budget for the bigger ticket items or whether some smaller ones are justifiable along the way. Letting children make their own decisions is a good one...but some guidance along the way is also important. "You sure you want to spend that money on a new toy instead of saving a little more for that teddy bear that you saw at the store with Grandma?" Remember, kids have short memories, especially when something immediately gratifying can be right in front of them. Allowing them to make their own choices will also give them a certain amount of independence and neither choice should be deemed a 'good' versus a 'bad' choice. Children must learn on their own, within limits.
Generally, after the age of about 5, it would be a good idea to set up a spending and a savings plan. This shows kids that they can still make the independent choice to spend but saving money is also important. Perhaps, some small chores can be incorporated, just enough to ensure that they understand that money must be earned. Of course, light chores are recommended at this age. You don't want an over-stressed child..but rather, something that is befitting their age and capabilities.
Once children are in their mid-teens you may want to add a little 'credit' to the situation. Give them a leeway of about $50 to 'over spend' with the intention of paying it back within a reasonable time frame. This will teach them that they can have that immediate gratification but the work must follow and payments must be made. You can even have the payments in increments. It is important, however, that you child gets 'paid' even though they owe you money because they may chose to only repay half instead of the whole 'pay-check' and this also helps them to manage their funds in a responsible way. Perhaps minimum payments should be understood and a 'credit' document be written up for them so they know their limits and expectations.
Once your children have entered their 20's they may well be ahead of their peers and they will make financially healthy decisions with their childhood experiences and your guidance, behind them.
So, as parents or grandparents what can we do to ensure that we are instilling the "good" philosophies about spending money. Keep in mind that money is just paper. What we want to teach our children is the work ethic, the sense of constraint and the freedom of enjoyment in a healthy balance. That's the real lessons to be learnt.
Typically, we can start our very young off with the piggy bank and teach them how to save and how the savings add up, if not spent. I think it is important to let children spend their money, if they wish, so that lessons can be learnt about how things cost money and how we can make conscious decisions as to whether we want to budget for the bigger ticket items or whether some smaller ones are justifiable along the way. Letting children make their own decisions is a good one...but some guidance along the way is also important. "You sure you want to spend that money on a new toy instead of saving a little more for that teddy bear that you saw at the store with Grandma?" Remember, kids have short memories, especially when something immediately gratifying can be right in front of them. Allowing them to make their own choices will also give them a certain amount of independence and neither choice should be deemed a 'good' versus a 'bad' choice. Children must learn on their own, within limits.
Generally, after the age of about 5, it would be a good idea to set up a spending and a savings plan. This shows kids that they can still make the independent choice to spend but saving money is also important. Perhaps, some small chores can be incorporated, just enough to ensure that they understand that money must be earned. Of course, light chores are recommended at this age. You don't want an over-stressed child..but rather, something that is befitting their age and capabilities.
Once children are in their mid-teens you may want to add a little 'credit' to the situation. Give them a leeway of about $50 to 'over spend' with the intention of paying it back within a reasonable time frame. This will teach them that they can have that immediate gratification but the work must follow and payments must be made. You can even have the payments in increments. It is important, however, that you child gets 'paid' even though they owe you money because they may chose to only repay half instead of the whole 'pay-check' and this also helps them to manage their funds in a responsible way. Perhaps minimum payments should be understood and a 'credit' document be written up for them so they know their limits and expectations.
Once your children have entered their 20's they may well be ahead of their peers and they will make financially healthy decisions with their childhood experiences and your guidance, behind them.
Wednesday, February 24, 2010
Timely Considerations
With the new year well upon us we welcome new opportunities. If you haven't contributed to your Tax-Free Savings Account (TFSA) for 2010 it may be a good time to do so. Every year Canadians are allowed to shelter $5,000 in a TFSA. The name, however, is a source of confusion. I think the government should have called it a Tax-Free Investment Account as the words 'savings account' has led to a lot of confusion. The funds you place in your TFSA can be invested just the same as your regular investments. Whether you invest in GIC's, bonds coupons or if you are a stock-affectionato you can hold many of these options in your TFSA potentially earning more than a regular savings account. Much like a RRSP where income is sheltered the TFSA is different becasue you will not receive a tax deduction for your personal income tax filings but you will not receive any T3's or T5's (for dividends and interest income) from income generated while the funds are in the TFSA. The account is also accumulative so if you missed putting the maximum in for 2009 you are able to put in $10,000 in 2010. Conversely, if you take out the $5,000 you put in in 2009 you can replace it and also add another $5,000 for 1010. Also, unlike a RRSP, if you take the money out this year you do not have to include it as income in your 2010 tax year's filings as you never received a deduction for it (a tax advantage) in the first place.
If you are thinking that you cannot make a RRSP contribution and a TFSA contribution at the same time then consider a couple of options. You can make the RRSP contribution and with any refund monies you can place it in your TFSA. Also, if you have any current non-registered investments you can always move existing investments over to your TFSA without adding any new funds.
If you are thinking that you cannot make a RRSP contribution and a TFSA contribution at the same time then consider a couple of options. You can make the RRSP contribution and with any refund monies you can place it in your TFSA. Also, if you have any current non-registered investments you can always move existing investments over to your TFSA without adding any new funds.
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