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Old 02-03-2009, 04:17 PM   #1
Robb
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Question TFSA (Tax free savings account)



I have a few questions (I know I should speak with a banker)...

How does this account work ? I see I can make $2.5% tax free interest on a TFSA monthly.
I currently have a GIA (Guaranteed investment account @ 1.5% interest)
[it used to be 3.25% a couple years ago.]
If I transfer lets say $150,000 into a TFSA account, will I earn 2.5% tax free interest on it monthly ?
What money do I have to contribute to the account annually ? They say up to $5000....
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Old 02-03-2009, 04:24 PM   #2
Redster
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Are you sure it's 2.5% MONTHLY, or is it 2.5% ANNUALLY?
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Old 02-03-2009, 04:27 PM   #3
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Are you sure it's 2.5% MONTHLY, or is it 2.5% ANNUALLY?

+1

if it was monthly id be taking out serious loans to put into this TFSA
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Old 02-03-2009, 04:29 PM   #4
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like i madea thread about this before.. people dont know how interest rates work.
its 2.5 per year duh.
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Old 02-03-2009, 04:35 PM   #5
T.Dot_E30
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You can only contribute upto $5000 per year into a TFSA. Interest earned on that $5000 is tax free.

Each year you get another $5000 that you are allowed to add to it, which will also be tax free.

You can't transfer $150,000 into a TFSA account without getting penalized for going over the limit and being taxed on it.
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Old 02-03-2009, 04:43 PM   #6
MiroE36
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Quote:
Originally Posted by Robb View Post
I have a few questions (I know I should speak with a banker)...

How does this account work ? I see I can make $2.5% tax free interest on a TFSA monthly.
I currently have a GIA (Guaranteed investment account @ 1.5% interest)
[it used to be 3.25% a couple years ago.]
If I transfer lets say $150,000 into a TFSA account, will I earn 2.5% tax free interest on it monthly ?
What money do I have to contribute to the account annually ? They say up to $5000....
I don't know where you got that information but let me clear it up for you...

TFSA interest varies from financial institution to financial institution, PC and HSBC are currently offering 3.75% annually (which is currently the highest available interest rate on a TFSA)... again that is annually, nobody will pay you 2.5% monthly... thats roughly 31.21% annual interest... and dare I say we all wish . However the interest compounds monthly so your effective interest rate will be 2.8% (on 2.5% stated).

You cannot transfer $150,000 to the account... 2009 maximum contribution limit is 5,000 streched over however many TFSA's you want to have... you can have multiple, but on aggregate you cannot contribute more than $5,000 in total without them giving you a penalty of 40% and charging you tax on the remainder. So overcontribution is highly un-recommended. in 2010 the contribution limit will be $5,500 and adjusted for inflation annually (don't expect this to impact us with the current economic situation). You do not have to contribute any money at all if you do not want to, the contribution room carries forward (including any interest that you have accrued). Any money that you take out within the year cannot be put back into the account... you will have to wait till the following year to put it back in... so only withdraw the funds if you really really need them, otherwise leave it be. Is this better than RRSP's?? no, frankly it's totally different and meant for different people. To put it bluntly RRSP's are meant for people in higher tax brackets and TFSA's are more geared towards people in lower income tax brackets. If you are making less than $40,000 RRSP's are wasted because you marginal tax rate is just 21%, whereas if you'd be making $80,000 your marginal tax rate is 32%, if you're making $140,000 your marginal tax rate is 40% (these are figures for singles). So each dollar contributed to RRSP's brings back much more money at higher tax brackets, which is why it's better for young people to build contribution room when they are not earning "high-tax-rate-dollars" and use the room when their marginal tax rate is worth it. I think its better to get $400 on ever $1000 contributed from the government as opposed to $200 or less. Don't forget.... this is FREE money!! So take as much as you can get, dont let it go to waste.

I hope I answered your question... if you want to know more let me know
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Old 02-03-2009, 05:17 PM   #7
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Typo.. I meant yearly..
so is it better to keep $150,000 in a GIA account @ 1.5% ?
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Old 02-03-2009, 05:21 PM   #8
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Give it to madoff, 12% per year!
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Old 02-03-2009, 07:52 PM   #9
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this pisses me off! instead of encouraging people to spend their money the banks are advertising saving accounts and coming up with new schemes. seems like everyone is looking after their own pocket these days.
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Old 02-03-2009, 07:59 PM   #10
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this pisses me off! instead of encouraging people to spend their money the banks are advertising saving accounts and coming up with new schemes. seems like everyone is looking after their own pocket these days.
Just what we need, another moron like Bush going and telling everyone to "go out and shop".

Alot of good that did
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Old 02-03-2009, 08:09 PM   #11
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Just what we need, another moron like Bush going and telling everyone to "go out and shop".

Alot of good that did
give me one reason why going out and shopping/investing is bad for the economy and saving is good...
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Old 02-03-2009, 08:23 PM   #12
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give me one reason why going out and shopping/investing is bad for the economy and saving is good...

without capitol(ie peoples savings accounts) you have no loans, without mortgages/loans you have no "large" purchases. Without large purchases you have companies like the big three that rely on volume to make a profit go under and the downward spiral continues.

Don't get me wrong its not a bad thing for the economy, its about balance. The banks extended beyond reasonability and when debts started being called in there was no money to pay.
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Old 02-03-2009, 09:08 PM   #13
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without capitol(ie peoples savings accounts) you have no loans, without mortgages/loans you have no "large" purchases. Without large purchases you have companies like the big three that rely on volume to make a profit go under and the downward spiral continues.

Don't get me wrong its not a bad thing for the economy, its about balance. The banks extended beyond reasonability and when debts started being called in there was no money to pay.
Good reason, but still, if people don't spend their money and save it instead, then who's going to buy the product/service associated with the "large" investment that a company made using the mortgage/loan. you're forgetting the bottom of the chain and focusing on the top, but the top pretty much relies completely on the bottom to survive.

you can't build a structure from the 10th floor down, you have to start from the foundation and work your way up, same thing with the economy, first you have to build a strong foundation and consumer confidence is the foundation, and has always been. now I'm no economist but this is what makes sense to me.
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Old 02-03-2009, 09:16 PM   #14
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Typo.. I meant yearly..
so is it better to keep $150,000 in a GIA account @ 1.5% ?
Non-registered investments are subject to tax. If you have the money, take $5000 and put it in a TFSA. You get 2.5% (or whatever the rate is), tax free.

Some numbers might make it easier to understand, not quite this simple but it gets the picture across. For instance, say your tax rate it 20%.

$150,000 x 1.5% = $2,250 / yr.
Less Tax @ 20% = $(450)
Total Interest (take home) = 2250 - 450 = 1800


So take $5000 out, invest in TFSA @ 2.5% / yr = $125 tax free
Still have $145,000 @ 1.5% = $2,175
Less Tax on 2175 @ 20% = $(435)
Total Interest = $1,865

You are $65 better off for not having to pay the tax, and investing the $5000 in the TFSA at a better rate. Even if the rates were identical, you would be better off by the amount of the tax you don't have to pay on the interest on the $5000.

Not a banker, but 1.5% seems kinda low for that much cash. RBC has a high interest savings acct that pays 2.5% (Prime - 0.5%) , I'm sure that there are other accounts as well that are higher.
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Old 02-03-2009, 11:23 PM   #15
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Not a banker, but 1.5% seems kinda low for that much cash. RBC has a high interest savings acct that pays 2.5% (Prime - 0.5%) , I'm sure that there are other accounts as well that are higher.
Ya TD bank is 1.5% Gotta see whats out there.

The RBC high interest account is at 2.5%, but look at all the fees they charge !
http://www.rbcroyalbank.com/products...e-savings.html

The GIA account I have with TD has no fees.
https://www.tdcanadatrust.com/accounts/gia.jsp

Last edited by Robb; 02-03-2009 at 11:28 PM.
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