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Top 4 Tax Free Savings Account Strategies

With the upcoming tax free savings/investment account in 2009, my mind has been racing about what exactly to do with the account.  Between my wife and I, we will have $10,000 worth of contribution room available to us in the first year which we intend to fully maximize.

How do we intend to use the account?  I’ve written a few ideas in the original TFSA column which I’m going to expand on below.

1. Income Fund

I am a big fan of passive income which is evident in my dividend investing endeavors.  One idea that I have for a tax free investment account is to invest for income.  The reason being is that the income is completely tax free.

With my leveraged account, I don’t invest in anything that produces a return of capital like income trusts or corporate mutual funds.  However, since taxation isn’t an issue with the TFSA, I will be looking into consistent high yielding equities to produce a tax free monthly income.  Some equities that come to mind are REITs and income trusts like Canadian Oil Sands.

Thus far (as of Jan 2, 2009), Questrade is the first and only discount brokerage to offer a tax free trading account.

2. Aggressive Trading

Another idea is to use the TFSA for aggressive equity/options trading.  This one is not as attractive as investing for income as capital losses cannot be claimed within a TFSA account.  On the other side of the coin, gains will not face any taxation either.

One lower risk options strategy is to write call options for equity positions that you already own.  With this strategy, you set the price that you are willing to sell your position for, but collect a premium in the process.  If the stock price raises above your limit before the expiry date, you will be forced to sell.  However, if the stock price stays flat or goes down during this time, the option will expire.  The result?  You get to keep equity position and your premium collected.  If you like, you can keep writing call options and collecting those premiums.

Check out this link for a detailed series on how call options work.

3. Credit Card Arbitrage

When I wrote about credit card arbitrage before, I came to the conclusion that the strategy wasn’t worth it due to the thin spread between borrowing and accumulated interest after taxes.  However, using a TFSA in conjunction with this strategy eliminates the taxation on the earned interest and makes the strategy more feasible.

Basically, take the free money that select 0% credit cards offer, deposit it into a high interest tax free savings account (approximately 3% these days), and collect the tax free returns on the free money.  The biggest caveat being to watch the dates when payments are due.

4. Emergency Fund

This is perhaps the most popular solution for the TFSA as it will allow people to let their “emergency” money grow/withdrawn tax free.  While there’s nothing wrong with using the TFSA this way, there might be a bigger potential with using the TFSA as a retirement account.

What do you plan to do with the upcoming tax free savings account?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 80 comments… add one }
  • Four Pillars November 13, 2008, 7:11 am

    I’ll be using it as an emergency fund/short term savings fund. For those of us who still have rrsp room – the rrsp is clearly a better retirement account.

    • FT FrugalTrader November 13, 2008, 7:50 am

      Hi FP! What about when your TFSA contribution room grows to 40-50k? Will you continue to use the room for savings?

  • Four Pillars November 13, 2008, 8:34 am

    FT – no, I should have mentioned that I’m only thinking of using the TFSA as a EF/short term savings for the first year or two. After that I suspect that like most Canadians, maxing out the contributions will be a distant dream.

    I can’t even max out my rrsp! Although I have to say that’s mainly because we’ve been focussing on paying down the mortgage.

    1 salary, 1 spouse, 2 kids…there is only so much money to go around.

    Mike

  • moneygardener November 13, 2008, 9:46 am

    I believe that your #1 (Income Fund) is a very attractive option. Reason being that income from trusts is 1 bird in the hand, while capital gains are 1 bird in the bush. You can buy several trusts that provide stable monthly income. This optioin is extremely attractive, and almost too good to be true when you consider how hard they are taxed outside of a TFSA. Use a synthetic DRIP for these and you have a compounding machine that draws no tax.

  • FT FrugalTrader November 13, 2008, 10:22 am

    FP, would it make sense to use the TFSA as an income fund for your family also? To me, having an extra tax free income stream is always nice!

  • Four Pillars November 13, 2008, 11:24 am

    FP – sure, that would be great. However, like I said, there just isn’t enough money to go around.

  • Scott November 13, 2008, 11:27 am

    I plan on doing #1 as well. I have a wad of income trusts (half a wad since the “crisis”) in a non-RRSP that I will be transfering in Jan08. The crash has provided me with a tiny wiff of a blessing. With the decresed value of those stocks I can now transfer more of them into the TFSA, it may however take 3-4 years to transfer them all (boo!).

    Also exactly (somewhat) how I plan on using the TFSA: tax free income stream. It’s a new piece of the puzzle that you have to look at and figure out how it fits into your financial plan: eg. contribute more to your RRSP (tax free) then use your TFSA to make back the difference (tax free).

    It’s great to have so much discussion about this new tool and all the ideas of how to go about utilizing it.

    FT: I have owned CND Oil Sands for a few years now. I recommend it (it’s cheap now!).

  • Daniel November 13, 2008, 11:42 am

    I’ve had some money in a savings account that yielded around $90 or less in average at the end of the year. I can say that this is not a main tax concern. To me the TFSA is more about growing money tax free than to have a few thousands in an “emergency” fund.

  • Brian November 13, 2008, 11:59 am

    I’m also going to use the TFSA for #1. Can someone tell me what the difference is between an income trust and a dividend focused etf like SDY or CDZ?

    I was thinking of building a divident etf portfolio inside my TFSA.

  • cannon_fodder November 13, 2008, 12:00 pm

    One of the challenges in the first few years will be that holding individual equities may be more costly. Will there be annual account fees on TFSA accounts at brokerages only waived when minimum balances of $20k are met? What about commissions?

    However, with the markets at these types of lows, perhaps buying some ETFs will be cost effective. Then, once the account builds up enough value, one can start dabbling in individual stocks.

    We’ve often heard the argument of mortgage vs. RRSP. In the past year or so, those that have been paying down their mortgage aggressively have received an after tax return of around 5-6% – enviable when compared to this year’s stock market returns. Now, the argument may be take the tax refund from the RRSP and invest it in a TFSA rather than paying down the mortgage. If you can get a stock that is yielding more than the mortgage interest rate, and it has the possibility for capital appreciation, the argument seems to favour this approach.

    Finally, for those that have children which are hopefully bound for university but only now can start saving for their higher education, perhaps it is worthwhile to contribute the $2,500 annually to an RESP (in order to get the maximum CESG) then funnel the rest into a TFSA.

    As for me, I still haven’t decided yet. It’s not like I have the money anyway!

  • nobleea November 13, 2008, 12:18 pm

    thinking about it, your option #3 CC arbitrage is not a bad idea either, especially since you can withdraw the money at any time to pay off the balance. it would be worthwhile for those who don’t have the cash to make contributions to a TFSA.

    i am going to use my TFSA as the aggressive investing spot and the wife’s as the emergency savings account.

  • Navvy November 13, 2008, 12:48 pm

    Toss another name in for #1. I have been buying into Artis REIT (AX.UN) and it spins off a pretty distribution every month. Imagining that cash accumulating tax free makes me drool.

  • Xenko November 13, 2008, 1:09 pm

    I am also thinking about doing option #1. I’m going to have to go do some research on dividends, income trusts, etc. as I have not yet learned about them.

    My only concern with dividends inside the TFSA is that dividends are treated very favourably tax-wise (in some provinces more-so than others), so it seems like a “waste” to put them in a tax sheltered account. If taxes on income trusts, corporate mutal funds, etc. are high though, the TFSA might be a perfect place for them, and you can keep your dividend paying funds outside.

  • Sarlock November 13, 2008, 2:24 pm

    It comes down to building the most tax-efficient portfolio given the plethora of combinations that will exist in a few weeks. It largely depends on what your marginal tax rate is now, what you expect your marginal tax rate to be at retirement. I expect that my marginal tax rate at retirement will still be significant, so investing in Canadian dividend-yielding or high-growth stocks is a waste if put in to my RRSP or TFSA. A capital gain in an RRSP will be taxed at 100% upon withdrawl while a capital gain outside any investment vehicle is only taxed at 50% *and* allows me to write capital losses off against it, an option unavailable in an RRSP or TFSA. Unless I expect my marginal tax rate at retirement to be less than half what it is now (which I don’t) it makes more sense to invest for dividends and capital gains in an outside investment. I am a big investor of junior mining stocks and all of these are invested in outside of my RRSP due to the huge volatility and potential for significant capital gains/losses.

    I intend to use my TFSA for interest-bearing “safer” investments. Interest is taxed at my full marginal rate as an outside investment, so it makes sense to locate this part of my portfolio inside the TFSA. It will also serve as my emergency fund, as some of the interest-bearing instruments will be easily liquidated for short-term funding shortfalls and then repaid in short order once monthly cash flow replaces the funds required. The TFSA seems to be the best place to locate the bedrock low-risk investments in your portfolio.

    The RRSP then becomes a great place to locate solid investments such as foreign dividend-issuing stocks (there are lots of great US dividend-paying stars) that do not enjoy any special tax consideration outside of the RRSP/TFSA.

  • JasonM November 13, 2008, 3:13 pm

    I am considering #3 and #1 combo, where I would use a 9-12 month 0% interest card to invest in dividend paying positions.

    Than save approximately $500 in a savings account (3%), pay tax on any interest made, and make minimum payment requirements and pay the final cc balance with this money.

    One downside I see, is even though one could gain a couple hundred in interest over the period, the alternative (monthly tfsa contributions) would force one to build positions slowly and bring them into the market at different points.

  • Colin November 13, 2008, 3:24 pm

    Correct me if I’m wrong, but investing in an TFSA is all well and good when the market is behaving. But when capital losses come into play, strategy #1 will be not so attractive. Most high dividend payers are getting cleaned out in this market, and those losses are not retrievable in a TFSA.

  • FT FrugalTrader November 13, 2008, 3:38 pm

    Colin, you are correct, if you sell a loser in your TFSA, capital losses cannot be claimed. However, my plan is to buy and hold securities with distributions that are fairly secure. Regardless of stock price, I most likely won’t sell, but continue to collect the payments.

  • Finance_Addict November 13, 2008, 4:33 pm

    FT. I am leaning towards #1also. However I am not sure yet how I will handle the income stream payouts. Will you leave it in the TFSA account or take it out as they come to pay for expenses etc?

    For me the TSFA account bumps the RRSP one spot down the priorty list.

  • TheProfitMaze November 13, 2008, 7:08 pm

    Hi,

    I like #1 idea.
    How is idea #1 implementable using index funds in a TFSA ?
    Do you know if it is feasible to open a TD e-funds TFSA (I sent an email to TD a week ago but no answers) ?

  • Jerry Hung November 13, 2008, 7:50 pm

    Hi FT
    I think the line for Covered Calls
    “If the stock price raises above your limit before the expiry date, you will be forced to sell.” should probably change to
    “If the stock price raises above your limit ON the CLOSING expiry date, you will be forced to sell.”
    You could sell your stocks before the expiry date (3rd Friday of each month), and if options get assigned at higher price, too bad; if not, you get the profits AND the option premiums.

    I think I’m doing #1, and maybe move my #3 into TFSA

  • Canadian Dollars November 14, 2008, 12:46 am

    Hey FT, what about the idea of buying preferred shares. It offers the benefit of high yield (and possibility of capital gains)

    For example SLF preferred B’s are yielding north of 7% at the moment. If the company decides to swap them or buy them back, you can buy other preferreds.

  • Jordan Clark November 14, 2008, 5:06 am

    I want to ask about option #3, I’ve had great credit but I’ve never even seen a 0% interest rate offer in Canada.

    I hear about it all the time on the US financial blogs and some US friends tell me about the dozens of 0% offers they throw out each month, but does that exist up here?

    Let me know if you get them, maybe they’re excluding me because I don’t carry a balance or own a home?

  • cannon_fodder November 14, 2008, 11:07 am

    Jordan,

    I’m just paying off a 0% interest, 0% Balance Transfer CC from Citi and just received a 0%, 1% Balance Transfer (reduced to 0.5% when I asked) CC from MBNA.

    The Citi gave me 9 months while the MBNA is giving me 15 months to pay it back.

    Go to redflagdeals.com, hot deals, and look for this thread – it is one of the most popular threads there. (There is another thread in Personal Finance that speaks to these offers.)

  • DK November 14, 2008, 11:53 am

    I plan on doing #1 as well.

    FT – will you be opening a Questrade TFSA to trade income trusts?

  • G18 November 14, 2008, 4:20 pm

    I’m leaning towards #4 as I don’t really need the income and just want to grow a non-reg fund. I’m thinking of buying some additional trusts like COS.un or PWT.un and getting on the DRIP program instead of letting the cash sit there. We’ll see how this works out.

  • Denis November 14, 2008, 6:10 pm

    I think I’ll be doing #1 as well … I really enjoy the idea of a long term hold with a passive tax free income stream. Any ideas on what the discount brokerages are planning to do and if they will open TFSA account types? If so, it’ll be interesting to see what fees they will charge since the maximum in Year 1 will be $5,000.

  • Conrad Melanson November 16, 2008, 10:45 am

    I am interested in creating a TD Waterhouse TFSA. Any ideas how this will work? For example, if I want to buy 100 shares of Encana (ECA approx $5700), how would this work. In other words, how can I maximize the limit allocated, since the chances of landing on $5k are slim on the stock market.

  • Konstantin November 17, 2008, 12:51 am

    I was wondering can I make an in-kind contribution to TFSA of jointly held shares with my wife?

    Any help would be greatly appreciated.

    Thanks,
    Konstantin

  • Jordan Clark November 17, 2008, 12:57 am

    @Conrad Melanson
    You’d have to buy an odd lot of shares because you won’t get more then the $5000 contribution to work with. Just contribute as much as you’d need to buy the # of shares that you can fit. The benefits of the TFSA will become much more significant when the limits start getting higher.

    @Konstantin
    You can’t have a joint TFSA, you’d have to transfer half of the existing shares into each of your personal TFSA accounts.

  • Konstantin November 17, 2008, 1:01 am

    Thank you for the prompt reply, Jordan!

    Does that mean that the ownership of the shares must be changed first from joint to a personal prior to making the TFSA contribution?

  • Jordan Clark November 17, 2008, 1:17 am

    @Konstantin

    Well I’m not sure, but I just opened up several new investment accounts in the last month and did several transfers from existing brokers, so my based on that my best guess is you just fill out two transfer request forms when the TFSA is created and indicate the number of shares to transfer in kind and have both current account owners sign each one.

  • Oleg November 17, 2008, 5:29 pm

    Hmm, #1 seems very attractive, although I haven’t quite looked into income trusts (just starting out investing — I’m 21). I already do #3, but with high interest savings account (as a student, I have ~$11k out on the 2 cards!).

    Maybe closer to the new year, you could do a run through of solid income trusts with great distributions?

  • mc November 19, 2008, 2:23 pm

    My strategy for TFSA is to get a fund(s) or ETF(s) with a low MER, high distribution preferably monthly (for DRIP), and an opportunity for growth.

    Anyone know of a good fund or ETF?

    I’ve done some initial research and like the CI Signature High Income in mutual funds and in ETF I was looking at Claymore Global Balanced Dividend.

  • FT FrugalTrader November 22, 2008, 3:57 pm

    mc,

    Remember that a mutual fund is only as good as it’s stock selection. I can’t speak for CI funds, but for the most part, active mutual funds are simply expensive index funds.

    For ETF’s, if you’re looking at income based dividend, you may want to look at XDV or CDZ as a portion of your portfolio.

    Hope this helps!
    FT

  • Xenko November 22, 2008, 4:32 pm

    I think Sarlock makes a good point. The whole point of distributing funds between different investment vehicles is to optimize (a.k.a. reduce) the taxes. Since the TFSA has tax-free withdrawals, it would make sense to put the highest taxed assets inside a TFSA, and keeping the lowest taxed assets outside.

    So high interest savings accounts and GICs which are taxed 100% at your marginal rate should be placed inside the TFSA, as they would now have a 0% tax rate. So putting your emergency fund inside a TFSA makes the most sense from a taxation perspective, as you will be removing all the taxes on it.

    After that, I’m thinking a GIC ladder inside a TFSA makes the most sense, as you will be generating income, with 0% tax, and no chance of losses, and you can count that as the “safe” portion of your portfolio, and put all your riskier investments in a different vehicle (RRSP, or non-registered).

  • LoneTime Smither November 28, 2008, 3:24 am

    I’m currently 3 years into going with a smithmanoevre style account. I don’t have any qualms about buying income trusts in that account. A little extra tax is worth the higher distribution. Based on the math I’ve done, I am farther ahead than if I had bought a stock with a midrange dividend. Especially now at the 4% rate i’m getting on my loan.

    My dilema is, do I open TFSA’s for my wife and I, max them out and buy some safer high yielding Trusts? Getting all distributions tax-free. Or do I borrow that 10k at 4%, write off the interest and purchase a couple of strong trusts companies with high consistent yields.

    Mathematically, I’d be farther ahead if I went the second route. But I really like the idea of giving my wife some cash that will not have any strings to me with the taxman. Not to mention tax free earnings for me.

    Anyone have an opinion as to which way I should go. For the most part, the distributions are used to pay down my mortgage, which I then reborrow the money to invest and thus create more distributions.

  • nobleea November 28, 2008, 12:43 pm

    LoneTime Smither;

    I assume you’re doing your comparison with the funds invested in the same trusts.

    Plus, have you considered that some trust distributions are ROC. When you eventually do sell them, there’ll be a much larger capital gain than if you had purchased a stock with midrange dividend. I don’t know if that changes the balance, but it’s something to consider in the comparison.

    Writing off the interest is nice, but if the rate is low enough, does it make that much of a difference?

  • nobleea November 28, 2008, 1:55 pm

    Hey guys and gals;

    Wanted to run this concept by y’all. If 14K was borrowed from a LOC (currently at prime), and then contributed to an RRSP. The 5K tax refund from the RRSP contribution was then contributed to the TFSA. The TFSA was invested in income trusts with decent yields (Interpipeline fund is yielding over 10% for example). And then the trust distributions were withdrawn from the TFSA and used to pay the LOC interest. Alternatively, the TFSA could be invested in decent yielding dividend stocks and then writing covered calls could make up some of the yield difference.

    At a LOC rate of 4% currently, you’d need a yield of around 10% to break even. If the LOC rate dropped to say 3.25% by January, the excess trust distributions could be used to pay down the LOC. The LOC rate would likely increase once the economy gets going again. Presumably, stocks would gain traction by then.

    Comments?

  • FT FrugalTrader November 28, 2008, 2:40 pm

    Nobleea, that sounds like a logical strategy. Why not whip up a spreadsheet and share with us the results? Or perhaps Cannon_Fodder can create one of his magical spreadsheets?

  • cannon_fodder November 29, 2008, 12:04 am

    LoneTime,

    I’m not sure if you are suggesting that you will pay down the mortgage, then reborrow the principal to put into your TFSA for investment, but if you are, I’m guessing that the government won’t allow the tax deduction for the TFSA contribution.

    However, you could take those interest/dividend distributions and instead of paying down the mortgage faster you could just put some money into the TFSA.

  • Dan Jensen November 30, 2008, 11:45 pm

    My first post on the blog, Thanks for all the great info FT, it has helped alot.

    A couple of questions.
    1. I am looking at option 1, will it be possible to do as moneygardener says so that i can compound the growth? Ideally I am looking at the TFSA to help boost my retirement fund alongside my RRSP. [a late starter on retirement]

    2. I haven’t seen much posted about the tax benefits of the TFSA for married couples, I plan to contribute to my spouses TFSA, to help balance out incomes at retirement. and to seriously reduce my income tax level at retirement compared to now. By contributing to my wifes RRSP and TFSA, I can get tax benefits now and when we retire. I then plan to use my wifes lower income tax bracket for our emergency funds at first, with the aim of moving all the emergency fund into TFSA over 5 years. Can someone confirm this a viable option?

  • Sampson December 5, 2008, 1:55 pm

    Very late to this post, but…

    I’m planning on dumping most of my Foreign dividend paying stocks into this account. I hope RBC can get it right and allow holding US cash though. This could be a deal breaker.

    I’ve come to realize how ‘convenient’ the timing of the TFSA is. Think about this, if you transfer ‘in kind’, most of us will realize significant capital losses, but if you are holding a stock paying a stable dividend you wouldn’t be selling otherwise. The in kind transfer allows you to maintain the holding, but get a ‘free’ capital loss credit to apply for future gains. Very juicy!

  • Jordan December 5, 2008, 1:58 pm

    In kind transfers trigger capital gains? I thought you had to sell an asset and not re-buy it for 30 days or the CRA considered it a wash transaction and therefore you got no capital loss to write off?

    Please correct me if I’m wrong.

  • DK December 5, 2008, 2:03 pm

    I haven’t seen anything from CRA on in-kind transfers to TFSA. Why do you think there will be an allowable capital loss? Remember that if the same rules apply as RRSP then a transfer-in-kind will not allow you to claim a capital loss…

  • nobleea December 5, 2008, 2:04 pm

    I believe in kind transfers from a non reg to a registered account trigger capital gains, but NOT capital losses. To get the losses, you have to sell outside the TFSA, contribute the cash, then wait 30 days and rebuy the equities.

  • Sampson December 5, 2008, 2:10 pm

    wow, quick responses. i was thinking about it and it certainly seemed to good to be true.

    with this volatility, 30 days out of the holding seems like an eternity. maybe worth a gamble though, since i’ve got some holdings with very substantial losses.

  • Remus December 19, 2008, 5:59 pm

    From all I am reading now I think a good choice would be Questrade tax Free Account and hold in it some Gold. The gold prospectes in the next years seem very optimistic from what I read.
    Also did you guys updated your choices as per who is the cheapest company? I now see their fees and they seem to be the lowest in Canada or am I mistaken? their “democratic pricing” :)

  • Steve December 25, 2008, 6:31 pm

    Does anyone know if appointing a beneficiary to a TFSA would avoid probate fees?
    Thanks

  • UK December 26, 2008, 12:14 am

    Hi,

    Can we trade US options in the TSFA account?

    Thank you

  • Mark December 31, 2008, 6:01 pm

    Great post!

    I’m leaning towards option # 4 since, as you can read above, there are so many unanswered questions with the TFSA.

    PC Financial has a tidy 3.75% rate.

    Why not put the $$ there for the 1st year and wait until the dust settles?

    Option # 3 isn’t a good one since you have to “watch when payments are due”. I don’t know about you, but I have enough things to watch already.

    Option # 1 and the use of REITs in the TFSA may be a good move, if you want an income flow. I may go this route in the future.

  • Carole January 8, 2009, 10:44 pm

    What are the rules about changing your TFSA from one company to another for a better rate or one that offers stock options.?

  • Sampson January 9, 2009, 2:08 pm

    Has anyone actually made in-kind transfers of existing holdings into their TFSA’s? I’m in the process, and just realized that its best to wait until the markets are down, therefore we can squeeze more units/stocks into the TFSA.

    I suppose just as long as I get the US and US ADR dividend paying holdings in before pay-day then I should be able to benefit from the tax-free status. Perhaps I’ll be waiting for a dip in the market? Hmm. Any good advice on how to ‘time’ the market? I don’t think I’d make a very good stock ‘daytrader’.

  • ron87 January 13, 2009, 6:22 pm

    I was just on the ING Driect website. And I read that the maximum contribution room an individual can have is $5000. Is this true? Or is there a way to increase your maximum contribution room?

  • Craig Sadler January 13, 2009, 10:24 pm

    ron87 that is true…the TFSA contribution room is $5000/year

  • Maxtron February 7, 2009, 10:50 pm

    Hi, this is my first post, I’m kind of new at this. I just jumped in with trading stocks with my TFSA and I think I dove in the shallow part of the pool. I’m currently trading US stocks because I tought I would save the taxes, since I believe the dividends are taxed as interest income. Now here is the problem, this is an email I have received 2 days ago from Questrade.

    ”… The U.S. government does not recognize registered education savings plans (RESPs) or tax free savings accounts (TFSAs) in their current tax treaty. All USD income earned in these accounts will be subject to applicable taxes.”

    Can someone please shed some light on how this will impact my capital gains and dividends.

    Thanks!

  • DK February 9, 2009, 12:18 pm

    Maxtron,

    In a nutshell, U.S. dividends are taxed at 15%, or 30% if you have not filed a W8-BEN with your brokerage. These amounts will be withheld by your broker.

    Your capital gains are not subject to U.S. tax.

  • Maxtron February 9, 2009, 1:55 pm

    Thank you DK for your reply!

    Seems like I didn’t brake my neck after all… Not yet anyway… :)

  • Al March 31, 2009, 4:51 am

    Has anyone considered over contributing to the TFSA and eat the 1% a month so long as you can make more than 1% a month you should still be a head of the game.

    I’m a pretty decent trader and make on average 5% on my portfolio each month. So i’m thinking i eat the 1% a month for the first 6-12 months and then pull out my over contribution amount leaving my capital gains in the account to continue to trade tax free. :)

  • Jordan March 31, 2009, 10:09 am

    Wow, 60% annual returns… what’s your secret?

  • Toban May 12, 2009, 11:42 am

    Income trusts are the perfect match for the TFSA because their income would be fully taxed if outside the TFSA. But in 2011, trusts are going to be taxed, so from what I understand they’ll be given the dividend tax credit. Dividend income would defeat the purpose of the TFSA, because it’s hardly taxed anyways.

    Are there any high yielding investments that can take full advantage of the TFSA post-2011?

  • Sampson May 12, 2009, 12:35 pm

    Toban, REITs (most if not all) will be exempt from the 2011 change in taxation laws – presumably they should be able to maintain high distributions. After that, it may be a matter of shifting bonds and other interest paying investments, as well as foreign dividend producing equities into the TFSA for me.

  • Amit July 28, 2009, 5:13 pm

    How is this low MER Claymore Global Monthly Advantaged Dividend ETF for TFSA?

  • Morning-wood August 7, 2009, 5:34 pm

    Responding to the fact that Questrade is the only discount brokerage with TFSAs…

    I was looking at this and I see a bias towards Questrade. It seems fishy.

    I use Q-trade and I am happy with it and it has won numerous awards from the Globe and Mail.

    I had my TFSA set up with Q-trade BEFORE the end of 2008 so whoever is pushy Questrade outa do their research

  • Stuart November 23, 2009, 4:23 pm

    After using both Qtrade and Questrade I can honestly say that I prefer Questrade. Qtrade has better research tools, while Questrade has much better trading costs and I prefer their customer service.

    As for TFSAs, I am of a similar state of mind as Million Dollar Journey, that the best holdings in these accounts is Income Trusts. I have written articles about why I believe this on my blog and even have a page dedicated to displaying my actual TFSA holdings, which is kept up to date. Bascially, I believe the TFSA should be use for investments that would normally be tax inefficient and still have capital gains potential. As a result of the new legislation regarding Income Trust Taxation coming for 2010, I have decided to fully fund my portfolio with Income Trusts.

    For those of you who are not sure whether to invest in a TFSA or RRSP please take a look at my simple guide: http://investingincanada.info/2009/11/rrsp-vs-tfsa-which-investment-account-to-use.html

  • Doby December 16, 2009, 9:06 pm

    I have a trading account with BMO and want to transfer stock into a TFSA for my husband and me. I can either add him to my existing trading account or set up a seperate joint account then transfer enough stock to that account to then be transfered into the TFSA’s.

    My questions is by transfering, will I still be able to realize the losses when I file income tax? Would I be better off to add him to my existing account or open seperate joint account.

  • chad March 30, 2011, 9:03 pm

    question if you invest in u.s paying dividened stocks are they tax free also

  • Konstantin March 30, 2011, 9:18 pm

    No, as TFSA is not considered retirement savings vehicle according to the Canada – US treaty.

    15% US withholding tax applies if you fill out W8-BEN (30% without it).

  • jet May 29, 2012, 12:24 am

    IT seams like I always invest oppossite of what the majority is doing & if Iam not it really makes me wonder if I have been thinking or just following.

    Most investors lose money in the well oiled market. Yet most people I talk to are either using their TFSA for high risk investments such as stocks or for a savings account. I feel comfortable using TFSA for purchasing GICs from online manitoba credit unions. The banks are to reckless with the money that is lent to them through deposits. I have heard so many say it is only 5000 dollars that there risking in the market but 5000 dollars really adds up over the years when interest is compounding. Aprox 30 years from now when interest rates peak out the money from TFSA will really start to work. ( there is a 30 yr cycle from high to low to high to low etc in interest rates)

    I will only risk 1-3 % of my capital in the stock market & it will not be in an RRSP or TFSA. which again is a lower percentage then what the majority is investing for those which invest in the market.

    As for RIETS I would only purchase private & again it is the opposite of what the majority is doing which is purchasing puplic. With no more then 3% invested

    For timming the market I have done my own research & use astrology & price pattern for my investing. Few do their own research going back over a hundred years & even fewer do the research to obtain the statistics on the effects of astro physics on market prices.

  • Goldberg May 29, 2012, 2:38 pm

    @jet. Astrology. I love your sense of humor.

  • Zolf May 29, 2012, 2:49 pm

    When I chart a 200 day moving average over a moon chart and multiply by a 4 year average S&P 500 P/E ratio I get a “sell” signal. Can anyone confirm?

  • Edwin October 22, 2013, 6:29 pm

    FrugalTrader, what broker you use for TFSA to trade option spreads?

    Questrade does not allow strategy option trades (vertical spreads, iron condor etc.) in the TFSA account.

    • FT FrugalTrader October 23, 2013, 11:09 am

      @Edwin, I do not trade option spreads, but I hear that Interactive Brokers is good for options however they do not have TFSAs.

  • satuk December 18, 2013, 7:29 pm

    Hi I am thinking of investing in TD eseries index funds in my TFSA account because of the low MER . Any comments on whether this is the right strategy? Thanks

    • FT FrugalTrader December 18, 2013, 8:06 pm

      @Satuk, i’m a fan of the TD e-series (I use it for our RESPs), i say go for it!

  • satuk December 18, 2013, 9:40 pm

    @FrugalTrader: Thanks for the reply. I am also thinking of TD e-series for both my TFSA and RRSP and I am planning to invest in TD e-series index funds – Canadian bond market index, Canadian stock market index , US Stock index and International stock index.

    Is it the right strategy? should I worry about withholding taxes? I read somewhere that for TFSA , I should avoid US index because of withholding taxes. Any input on this? Thanks

  • FT FrugalTrader December 18, 2013, 9:46 pm
  • satuk December 19, 2013, 4:08 pm

    @FrugalTrader Thanks for the reply. After going through the link, I understand the only difference is no foreign equity funds in TFSA. Is it because of withholding tax? So I can invest in the TD e-series index funds for both RRSP and TFSA except in TFSA I should not invest in US and international index funds. Is my understanding correct? Thanks

  • FT FrugalTrader December 19, 2013, 4:11 pm

    @satuk, you got it. Basically, if you are going to spread between TFSA and RRSP – put the US/international funds in RRSP and Canadian equity/bonds in TFSA. That should do it!

  • satuk December 19, 2013, 5:00 pm

    Thank you. I think now I am ready with my investment strategy for 2014.

  • satuk December 19, 2013, 5:04 pm

    also I am aiming to do maximum contribution to both RRSP and TFSA so for me it is contributing to both accounts and not a choice between these accounts . I am a passive investor as this is my first year of investing in Canada and not keen to open a brokerage account. Hence I would like to stick with TD e-series for the time being and hope this is the right strategy.

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