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TFSA: To Flailing Sorta Always

11/30/2020

I am writing from home and as I continue to become one with my couch, so goes my language, wit and ability to make sense of most things. I wrote this intro (which may effectively serve as an outro) after re-reading this article. I considered starting over but seriously, who has time for that? Rather, I figure this lengthy almost-apology/warning prologue of sorts dedicated to both my editor and readers would suit. Here goes:

So I am already annoyed. Whoever named the TFSA, an acronym for ‘tax-free savings account’, should be fired. It is not a traditional savings account nor entirely ‘tax-free’. My knowledge of ‘savings account’, grim as this may seem, starts at a piggy bank and ends at an almost-no-interest-ever-made TD account. This is not to say I have not tried my hand at other investy options, but rather to note that they failed (more to come on this below). The TFSA, similarly to the RRSP, is like a funky little basket that you can toss a bevy of financial instruments into (stocks, bonds, ETFs…I haven’t the energy to list. Read my RRSP article, it’s all the same acronymy stuff). The money you put into a TFSA is your ‘after-tax’ dollars, which is another way to say your regular taxed income. TFSA contributions do not earn immediate tax breaks like RRSP contributions (aka you can’t write it off); however, you will receive future tax breaks, as all investment gains within the TFSA are not subject to any taxes. 

You know, this is why I hate finance, you always just feel a little bit robbed. Similar to an Aritzia sale. Or a Hinge date (by way of misleading photos, not literally your date committing robbery, as my sister seemed to think). If I were crowned namer of all things finance, I’d call this the: after-tax government registered investment account, otherwise known as ATGRIA. (Get this girl a job!). 

RRSP: pre-tax $ in –> $$$ made on investments –> pay tax on it when withdrawn
TFSA: after-tax $ in –> $$$ made on investments –> no tax when withdrawn
I am now realizing that this elementary flow chart has made the aforementioned 2 paragraphs irrelevant. Redundancy notwithstanding, we move onwards.

You can open a TFSA if:

  1. You are 18 years of age (if there are any 17-year-old readers here, you are far too fiscally responsible to be reading me, I’d recommend elsewhere)
  2. You have a valid SIN

I’m feeling awfully long-winded (which coming from me is quite concerning), so I’m going bullet points on this one: 

  • There is a yearly contribution limit: for 2020 that is $6,000
  • You can contribute up to the dollar limit plus any TFSA withdrawals or unused contribution room from previous years (just like in a RRSP).
    i.e. If you have never opened a TFSA and are, say, 24-years-old, you could contribute $38,000 today.
  • You can open as many TFSAs as you wish at different financial institutions so long as the total amount contributed does not surpass your available contribution room (just like with RRSPs – read linked article for where to open an account)

All this to say, because I know you are all dying for my highly unqualified opinion on the matter: open a TFSA. It is honestly a steal (just like a RRSP). Unsurprisingly, our official editor-approved opinion is that if you can save on taxes (legally!), you should. TFSAs and RRSPs are one of the easiest ways to do that.

Now, for a quick personal PSA on what happens if you over-contribute to your TFSA(s). Because what’s a writer if they don’t divulge the idiocy of their own life? (Probably just a smart writer). 

At a time in my young life, I had two TFSAs without realizing it (don’t ask). I made the full contribution to the account I held with my local bank without noting my financial advisor had also filled another TFSA ( I never read his mail). Fast-forward to angry notes from the CRA and having to pay 1% a month of the over-contribution until I removed it. Then, double the fast-forward to when I went to pay my American taxes (I am a dual citizen). I was told by what was a very rude woman at H & R block that I had to pay American tax on any investment gains earned within my TFSA. It seems it is only considered tax-free to the Canadian government. (Important to note that North American tax and financial agencies are all separated by their national boundaries).This was quite the dark period for me.

I wonder if one day I’ll be glad that I have this breakdown memorialized on a financial journalism site. A sort of diary of times endured. I also wonder just how deeply I can dig this grave before I am actually fired. The term ‘thin ice’ comes to mind. And following, the image of me plummeting through it.
It will be better next week. Or worse. Who’s to say? I don’t want to sound desperate, but dear God or whatever higher power you may pray to, please keep reading. 

 

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