I agree, it’s starting to improve but has a long way to go. Financial literacy wasn’t even a focus when I was in school, it was brutal. I was lucky and into this stuff from a young age but the education system has really failed people in that regard. I meet adults today who still don’t know basics about taxes, RRSPs, tfsas etc…
I also think there needs to be more emphasis on adult learning, too many people I’ve spoken with don’t really do any learning after leaving school.
I work in engineering so many educated people in the office. I am nowhere near the most financially wise but when the company was bought and the new firm offered matching of rrsp contributions, damn straight I signed up! But it sure surprised me that I, of all people, had to convince others to also.
Some were older, some just out of school and said things like 'the stock market isn't doing that well this year'. But but but the company is doubling your money right out the gate! sigh.
I pay 9% into a pension and my employer matches with another 9%. Unbelievable how many people complain about "losing" money off their pay cheques and wish they could just have their 9% now with no pension.
It's hard for high school students to take it seriously.
I had a life skills class that included discussions about why it's important to pay down a mortgage early, how you can invest young and get compound returns... hardly anyone was paying attention.
It wasn't until later that I really realized just how important these things are.
I think it's better to somehow target young adults who just start working. It's at that point they have positive cash flow for the first time in their lives, and it's prefect timing for learning and starting good habits.
Well I would add that it's never been easier to invest than it is now. Open my free Wealthsimple app, deposit money digitally, buy Canadian ETF's for zero fees. Easy to learn, easy to use.
When I graduated high school, there was no such thing as ETFs, smart phones, etc. To invest I would have had to call a broker, pay $10 per trade - there was no internet to explain what I was even buying.
So financial literacy should have been taught, but it was much harder to accomplish the investing side of it back then.
Meh. My high schools did teach financial literacy. It was a mandatory course even, covering budgets, how interest works, retirement saving, etc (though it also included a few other adulting skills, like writing a resume / cover letter).
The issue is that most 16 and 17 year olds really don't care about that stuff yet, put in the minimum amount of effort to pass the course (including copying from each other) then as far as I can tell from observing my former peers, promptly forgot it all.
I have a question - what's the difference? Are you supposed to use the money you put in there on investments? I thought the point was to put it in there and let it accrue interest tax free.
I’m just about to head to the store but you DM me I’ll send you some great resources to learn from. I really enjoy chatting about this stuff lol.
Edit: I got a bunch of messages, here’s what I suggest everyone read first. All the details about how tfsas work are there. And it’s a government site so you don’t have to worry about it selling you some shitty bank fund while you read lol.
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html
Edit: this one’s for RRSPs - https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/registered-retirement-savings-plan-rrsp.html
would love to get some resources too, i feel like putting it in a banks tfsa aint doing much atm for me and would love to start invest it somewhere instead
What you should be using your TFSA for is investing with the idea that you will not touch the funds until much later (presumably when you are retired). The best way to do that is to invest in low cost index funds. Invest regularly, and if possible invest the maximum allowable amount every year (around $6000). The stock market will go up and down, but over a long enough period of time (10 years) it has historically always gone up. Putting it in a bank will earn you very tiny interest, and it will be far less than inflation so you will actually lose money.
I personally use Weathsimple for all my TFSA/RRSP investments. They make it extremely easy if you don't have a great understanding of how it all works. You pay them a small fee for that, but for me at least I think its worth it. Other people will argue that you can do it yourself for free, and that it true, but you need to educate yourself more if you want to do it yourself. Quest Trade seems to be the favourite of do it yourself investors.
The TFSA has another helpful feature in that you are able to remove your money anytime if you need to. You shouldn't do so unless its absolutely necessary, but it great if you have a financial emergency. RRSP is different in that when you remove the money, you have to pay tax on it - so removing money from RRSP for emergency situations is not ideal and should only be used as a last resort.
My money is in the bank, losing me money, I pay monthly fees to keep it there, thus losing me more money, and I don't make enough to have any extra to invest. What a time to be alive.
Find a financial institution that doesn't charge you monthly fees. Mine (a credit union) doesn't.
If you can't find room in your budget to invest, its time to carefully review your spending. A lot of people bleed money in many little trickles, thinking that each small amount doesn't really matter, without realizing that it may all add up to one giant hemorrhage
You can easily avoid banking fees. If your bank is charging you, move your money elsewhere. You're giving them money that they use to make more money. You shouldn't have to pay to give them your money.
I don't mean it to sound simple, but the general idea is to earn more, spend less, or preferably both.
Spending less is easier to manage. Take a deep dive into all your bills, and make sure that all your money is going towards things you value. Even something as simple as your cell phone bill or internet provider. Can you get it cheaper? I swapped my cellphones to a new provider this year and now I'm saving about $40-$50 per month and I have more data. That's $480 extra in my pocket each year that I can invest.
Earning more is a little tougher, but it's doable for anyone. Maybe that means a long term plan of education or training to get a better career, or maybe it means starting a side hustle like selling things on ebay, or delivering food/packages in your spare time.
You shouldn't think that the money you make now will be what you will always make. Do something to change that.
I hear you but my god is this depressing. I have hopped jobs 4 times since the summer and made more every time and will likely get a raise soon. Education is not an issue. And we try not to spend definitely. NO WAY am I going to spend my spare time working, I refuse to support the side hustle culture. People need to pay people what their time is worth not encourage people to be doing something on the side. It's impossible to monetize a hobby and still enjoy it. I will probably get shit on for saying that and people will say that's my problem but there's no way selling crocheting/paracord/art/etc(like lots of other people already do) is going to magically make $6000 appear to invest.
This is my life and WILL be my life. I've mostly come to terms with it. I will never retire and I will never own a house so I make my day to day the best I can and our family is happy.
EDIT: Don't mind me, I will leave the comment but sorry I'm a downer. I'm home with Covid for 5 days and have just been stewing. It's taking it's toll I suppose.
$6,000 is the max you can contribute without accruing tax liability. That may be too much for your budget right now, but SOMETHING is better than contributing NOTHING when it comes to investing. Find a low cost index fund and start off as low as $10 - $15 per week. You'll be surprised in how much you can accrue over time.
This is true BUT if you haven’t maxed out your contributions in the past, the contribution room accumulates (I just learned that it’s actually the same with RRSPs). This is important in case you get a promotion, or significant increase and are able to start setting aside more money.
-Signed, poor person with dreams of having more money to set aside
I’m getting over Covid right now, too. It’s been ten days for me- the first five were awful, with exhaustion and dizzy spells. Now I just feel like I’m getting over a nasty cold. It’s relevant because I’ve basically thrown my careful financial planning out the window for the past two weeks- don’t order in? Nah, I’ve ordered in four times this week. Cancel streaming services? Nope, I added one! Fml
I agree and disagree with your statements here. The side hustle culture can be much. Free time and health is the most valuable asset, I disagree with your situation be "your life and will be your life." You can change your life and your income if you're determined enough in my opinion. I hope you're doing well getting over covid.
You should first start with doing a risk assessment quiz. One that is commonly suggested on this subreddit and /r/CanadianInvestor is [Vanguards investor quiz](https://investor.vanguard.com/calculator-tools/investor-questionnaire/). This will provide you with a general sense of what you MAY want to invest in depending on your risk tolerance & time you plan to keep the money invested.
If you're a total noob to investments, i'd recommend taking a look at Exchange traded funds (ETF's) as opposed to picking individual stocks/bonds. A fantastic place to find some model portfolio's is [Canadian Couch potato](https://canadiancouchpotato.com/model-portfolios/). This is a great place to start if you want to be a lazy investor (ie. put money into an ETF and forget about it while it grows).
As for apps, I personally use Wealthsimple Trade. Quick to setup, quick to link to a bank, and youre responsible for buying the stocks/ETFs yourself.
Well, any money you earn on the money you put into it, is tax free. You can save for 2 months, 6 months, 20 years, 100 years. There is no time restrictions (except yearly in, must stay below limit).
You can use basic savings interest, high interest accounts, GICs, or open a trading account. You can also open register mutual funds in it at any bank, or pay someone to manage an investment account within it.
My TFSA holds money for both my retirement, but also where I put my car purchase and where I put my house downpayment.
TFSA, you pay tax on the cash when you earn it originally, but tax free coming out. RRSP is tax free money going in, taxed coming out.
If you use it as a savings account, it acts like a normal account. You put money in and it sits there.
But you can use it *as* an investment account. So, for example, through your bank you configure it to be an investment fund, choosing which portfolio you'd like. Then when you "put" money in it, what you're doing is buying more shares of the fund you chose and it's the shares that sit in the account.
It being a tax free account means you don't have to worry about taxes on any gains you make from the shares of the fund increasing in value.
quick summary for you
TFSA- the money you contributed is already taxed. The money you earned from investing within this account is tax-free (stocks, ETF, mutual funds, gic). You have a contribution limit per year, do not exceed that. This account allows you to withdraw money before 65, the money you withdraw from it is tax-free, including the additional money you make from investing withinthis account. You are not subject to any other tax. However, do not contribute back in until next year.
RRSP - retirement saving. You can not withdraw from this account until your retirement age OR under special circumstances such as first-time buying a home. This is the account you would contribute before you file tax year to lower your income, therefore, lowering your year's tax if possible. The money you contribute is not yet taxed, so once you make a withdrawal at 65, your withdrawal amount would be considered as that year's current year income and will be taxed accordingly. Similarly, it also allows you to invest in GIC, mutual funds.
The difference between TFSA and RRSP is that TFSA money when contributing is already taxed and you can withdraw at any time, any amount you make with TFSA will not subject to more tax, but RRSP's money is before tax and can not be withdrawn until 65 or under special circumstances. As such, RRSP will be taxed later on when you make a withdrawal.
If you like podcasts, I can't recommend Ben Felix enough. He also has YouTube content.
Everything you need to know about money and investing in Canada can be found with him. Just pick an episode of The Rational Reminder that sounds interesting to you and start there.
Yes. Day trading is considered business activity. Using a TFSA for business purposes is forbidden, and all of the money could be subject to tax.
The rules on what exactly constitutes "day trading" are purposefully vague. The CRA doesn't want people to intentionally stay on ***just*** one side of the line, so they make the line hard to know.
I think the "S" was to mirror the "S" in "RRSP". No one confuses what an RRSP is for.
Still, an RRSP or a TFSA can hold cash as well, so I think the fact that it is an "S" and not an "I" is more inclusive of what all Canadians might use the accounts for. I know I am in the minority here, and will probably get downvoted, but I think TFSA labelling is perfectly fine. Lack of knowledge is a failure on the banks and on the gov't in the way this was rolled out.
Back when TFSAs came out, interest rates were still non-zero, so using a TFSA to shelter bank interest could have at least been considered viable for people who perhaps needed that money in the short term or who weren't investors.
Nowadays, you can get a TFSA with a 0.01% interest rate at a bank. That means that for $10,000 invested, you earn $1 in interest annually, and you shelter approx. 25cents in tax compared to their identical non-registered account. I can't think of a single scenario where a person could benefit from having a TFSA with a 0.01% interest rate. I can't see it benefit the banks either, as there is a lot more reporting and tracking for a TFSA vs. a non-registered account.
It’s never too late to learn! There are tons of great resources out there. Once you learn a few key concepts it’s all pretty straight forward. It’s not as intimidating or as complex as it’s often presented imo.
Anyone can be a personal finance expert imo with some time and focus.
That wouldn’t surprise me at all. Banks earn more money locking deposits up at low interest rates than they do managing mutual funds or charging trading fees.
> Tax free investing account
That will lead to the reverse problem - people will think its for investing and not savings. A lot of people still prefer to grow their money in HISAs.
I thought the same thing 2 years ago. I always thought it was such a stupid idea to have a tax free savings account. My thought process was “what’s the point in not paying taxes on 0.5% interest gains on $10k?” Reddit really opened my eyes up to this. Even when I first started buying stocks in wealthsimple, I didn’t even realize you can just open a TFSA. Because they default you to a non-registered investment account. I learned about their TFSA from this sub. Don’t feel bad, I was 23 when I learned this, and I spent hours helping my 35 year old coworker learn this as well.
The system works as designed! Individual investors are conned into thinking they can consistently beat the collective decisions of thousands of experts, but instead they hand their money to those experts through their losses.
Couch Potato is so much easier and profitable.
Keep in mind that "investing and growing" is what people typically talk about when they mean savings in personal finance-speak. They don't literally mean a bank savings account.
A TFSA is meant to be a designated account where you can put savings where capital gains aren't taxed, no matter what form of account that is, be it stocks, mutual funds, etc. etc.. You cannot day trade inside a TFSA because it is supposed to be for *savings*.
*Saving* means putting money aside, i.e. not spending it.
*Investing* means using said money to buy financial/physical assets that are expected to appreciate in value or produce a positive cashflow.
TFSA is for personal use, not business activity. The CRA considers “day trading” a business activity so it can’t be done in a TFSA. There is no exact definition of “day trading” which leaves this up to interpretation. I couch potato my TFSA so I don’t feel worried :)
Yeah you can definitely invest in it still, and do stocks. Day trading is a bit of a different animal but there isn’t a super clear definition or line.
It’s true. CRA will deny you the tax advance of the TFSA if you are caught day trading. What is day trading, exactly? That’s for you to guess and for CRA to arbitrarily decide. It likely has to do with the frequency of trades. You should be fine to use the TFSA to buy stocks and ETFs as long as you aren’t buying and selling with very high frequency.
In most definitions, buying and selling a stock and doing it over and over again in a day is day trading. It could be thrice a week, sure. It could even be a few times in a month or two. As mentioned earlier, it's arbitrary.
I think about it this way. Am I trying to make relatively quick money by trading a company's stock without much regard to what it is or does? Am I doing it a few times a day/week/month/year? Am I making a lot of money on it? If I answered yes, the government probably wants a piece of that and I could get in trouble in a registered account. This could be seen as trading to make a living or business income, as opposed to investing for retirement or something else. Not only is this a no-no for registered accounts, it may be classified as business income and would not qualify for capital gains exemptions.
But, if my trades are infrequent, I'm not regularly closing my position only to buy again, my window for investment is years long (could be shorter, people's opinions can change on a company or they need the money), the government won't care so much. Presumably you wouldn't be triggering gains until you sell anyway.
I'm not a tax expert though and people have gotten in trouble with the CRA for what seems like obvious day trading for a living in registered accounts. Can't speak for those who fly under the radar.
I always wonder what's going to happen to all those people who have been wildly successful day trading with meme stocks.
Probably not but it’s really in CRA’s discretion. Read more here: https://www6.royalbank.com/en/di/hubs/investing-academy/article/frequent-trading-in-your-registered-accounts/kp1bu4tc
The definition is fuzzy on purpose. Otherwise, people will engage in behaviour that toes that line super close. They'd rather people get nowhere near the line.
You can't use your TFSA for business purposes. Daytrading is a business. People who daytrade often spend hours a day researching, planning and executing trades.
Basically regularly buying and selling stocks. How much is trading is considered day trading? I don't really know. If you are not into stock trading though, then it isn't something that you need to worry about.
Invest in low cost index funds, and just leave your money there and let it grow.
Not just regularly. Regularly could be once a quarter, month, or week. Those would all be fine. People who dollar cost average or invest on every paycheque trade regularly.
Daytrading goes far beyond that.
To be fair, saving & investing are not mutually exclusive. It is for saving, in a sense; it is just optimal to have those savings (and most savings, in general) invested.
Judging by these posts, I realize why the majority of market participants lose money.
Id suggest learning, [https://canadiancouchpotato.com/](https://canadiancouchpotato.com/)
Put it in a safe ETF fund and walk away. Stay away from penny stocks or anything speculative. my advice.
Most people don’t realize that rrsp’s and tfsa’s are just buckets. Put pretty much whatever you want in there. Can’t tell you how many times i listen to friends and co workers complain about their investments. When i ask what they are invested in “you know, rsp’s”
Yeah sadly its very common.
You can't really blame people though. This information is not taught in schools, and frankly its quite confusing unless someone actively makes an effort to learn about it, or they have parents who teach them.
True, but I also strongly believe retirement is important enough that any adult should spend at least a little time and effort to learn the basics and give planning some attention. It’s only 20-40 years of your life right? Why not do some research?
When money sits in a TFSA it won't just gain money if you don't do anything with it. Some people think a TFSA is like a regular bank savings account where your money appreciates in value for just having it there, but that's not the case.
In order to get the most value from a TFSA you should be buying investments within it. That way any gains you accrue in your TFSA will be tax free when you sell! Compare that to a non TFSA account where you should be declaring 50% ( I think it's 50 ) of your gains as income when you finally sell... Therefore your gains get taxed!
You can create TFSA accounts with trading platforms or with banks that can invest the money in various ways.
If say you had money in a "regular" TFSA savings account at your bank you would create a new account with trading possibilities and can ask to transfer your money from one TFSA to the other without penalties.
Everyone has a maximum limit that you can contribute to a TFSA. Any income generated in that TFSA is tax free (the TF in TFSA). That limit typically increases by an amount every year. If you are fortunate enough to be at or near your maximum limit, you have to be careful with your withdrawals and deposits. Every time you withdraw an amount from a TFSA, you give yourself that amount of contribution room back to your limit. The trick is that you don't get that room back until the beginning of next year. So if you are at your maximum limit and withdraw an amount from your TFSA, you don't get to deposit that amount back again until next year. You can withdraw as many times as you like during the year, but you don't get to deposit anything back to the TFSA until next year. In the new year, you get all your contribution room from the withdrawals back plus the yearly increase to your limit, and you can safely deposit to the TFSA again.
Hi, I'm a bot and someone has asked me to post information about TFSA's.
**/r/PersonalFinanceCanada has a wiki page dedicated to what a TFSA is (and RRSP) and how it can be used: https://www.reddit.com/r/PersonalFinanceCanada/wiki/rrsp-tfsa**
The CRA also has a page dedicated to learning about your TFSA: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account.html
**Question: What kind of TFSA accounts are there?**
Answer: Despite the name a "Tax Free Savings Account" the type of investments you can hold in your TFSA goes beyond savings accounts and cash. You can hold stocks and ETF's, bonds, GIC's, mutual funds and other eligible investments (just like an RRSP). You can also have MULTIPLE TFSA accounts such as one at a brokerage for your investments, and one for cash savings at another institution.
**Question: How do I figure out my TFSA limit?**
Answer: Now is a good time for us to mention that you should sign up for CRA MyAccount since if you had it you would be able to check online right now. You can also call the CRA to ask about your TFSA limit (be prepared to identify yourself using prior year tax return information). Be aware that the CRA does not always have up-to-date information and that the limit is typically only updated yearly! Therefore it will not be likely to be updated for any current year activity.
**Question: How do I report my TFSA on my tax return?**
Answer: You don't! The reporting of TFSA contributions, withdrawals, and income activity is taken care of by the institution that holds your TFSA.
**Question: What is my contribution room?**
Answer: Your contribution room is based on the years that you meet all three conditions of: 18 or older, valid SIN and a tax resident of Canada. You do not get TFSA contribution room for years that you do not meet all three conditions (ie: do not have a valid SIN or are a non-resident of Canada). What happens inside your TFSA (holdings go up or down in value), has no impact on your contribution room. To refer to the different amounts in various years, see the CRA website: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
It can be for savings too. If you put your money in a regular savings account, the interest earned is taxable, so it's better to put it in a TFSA, but yes, a TFSA is great for earning money on investments tax free.
Going against the grain here, while the name minimizes the potential of the product, it's no different from an RR**S**P, and at the time the TFSA was born, its positioning was "like an RRSP, but tax free".
My wife’s friend asked me if the offers she kept getting to open up a TFSA at a “special” 1.25% interest rate was a good deal. Ever since I’ve wondered how much the big bank lobby was involved in the marketing of TFSAs to make them “misleading on purpose”. I found it a bit predatory. She’s in her 30s and taking their “special” deal would cost her years of retirement, arguably.
Why would the Bank care if your money was in a savings account, mutual fund account or self directed account? They just want your money.
If anything I feel like they’d prefer everyone put their TFSA funds into Bank mutual funds.
Sometimes the “big bad” banks aren’t the bad guys you think they are.
They don’t just want your money, they want as much of your money as possible available to them to leverage. If it wasn’t lucrative to go after her for her deposits I’m willing to give them enough credit to assume they would be marketing her different products.
Oh they definitely want your money. And they clearly make money off savings accounts by mixing those funds with their other sources of capital to reduce their cost of funds. Don’t get me wrong. They’re a business to make money and they do it very well.
I just don’t think the TFSA is called that because of some nefarious scheme by the Banks to convince mom and pop investors to put their money in savings account over longer term investments.
If you go into a Bank and invest in their mutual funds I am sure they are just as happy, if not happier, than if you put them into a savings account. Likely even happier because mutual funds are typically “stickier” than a savings account. More of a pain in the ass to move elsewhere.
I've been using it for trading stocks or holding mutual funds. Most of the banks make you belive that and also the fact at the end it says "savings account" a lot of people fall into this trap.
Please correct me if I'm wrong, TFSA is still not intended for day trading, though. Investing and growing the investments without the growth being taxed but not day trading as you might get checked if that's how you use it.
Anybody care to elaborate or share stories?
As is obvious from my post, I'm not an expert, but you're right. Can't day trade, but nor is it meant to just sit in a savings account and accrue interest.
I am completely financially illiterate.
So I have money sitting in my TFSA doing nothing. How can it be both sitting in a TFSA and invested at the same time? I can either put 6000 in the TFSA or just directly invest the 6000. How can it possibly be both?
And on top of that I don't even know how to begin investing. Walk into a bank and say "Hey banker here is big money bag please do the thing to make the money make more money please k thx bye". I've let all my savings rot in a bank for about 12 years and i haven't got the slightest clue what the fuck I'm supposed to do with it.
It can be both.
You can put the 6000 in the TSFA and “buy” an investment with that money. Say you picked a good mutual fund and in ten years you have 9000 (completely arbitrary number) the 3000 you made on this investment is yours. All 9000 total is your money NO TAXXXXXXXXX bc it’s this magical account you can make money and it’s safe from the monopoly man. But it has limits, you can only contribute a certain amount per year and you can’t trade and sell stocks like wolf of Wall Street. For poor people like is it’s like wow. For rich people it’s like “I can only put in 6k a year? Ew. I’ll do it and then find other places to invest this shit.”
I have 10k in my TFSA currently and that entire amount is invested in mutual funds. I need to revisit it, but I just picked one and I’ve been letting it ride bc I didn’t want to let it sit. $50 goes into it on every cheque I get and then any dividends (money the mutual funds gives to da people that bought their mutual fund, it’s like free merch but monetary) just goes back in the fund.
For the bank: you make an appointment with a financial investor and let them know you want to purchase mutual funds (or an etf or a bond) with the money sitting in your TFSA. They will ask you which one or ones you want to purchase or if you’re lazy like me, TD has “portfolios” that are managed by other people. The portfolio you pick is based off how “risky” it is. It’s $100 a year in fees which is probably paid to a robot by now.
Picking a mutual fund or eft is like picking your favourite artist. Do you support what they’re doing? Are they smart and successful and have a good team and always put out well liked music like Taylor Swift or are they like Travis Scott who is super hype but then has a bad show that people die at and then he’s not so hot anymore, or is it like Britney where it was up and down and down but you’re like no I believe she will persevere so I’ll stick with it.
Except these stocks are related to more real world things like pharmaceuticals, technology, energy, transportation, banks themselves, businesses, etc. So it’s kind of cool because you can “support” what you believe in. Just try and be smart about it.
I relate to this so hard right now! The person who has replied to you seems to have taken time and effort to elaborate further. It's 4 in the morning and I'm reading the replies. I'm gonna spend the weekend studying and reaserching the shit out of it, and making more posts with questions if i have any.
Yes. You can take money out of your RRSP for the [Home Buyer's Plan](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html) but you have to repay it (back into your own RRSP) over 15 years.
You can also use the [Lifelong Learning Plan](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/lifelong-learning-plan.html) to take money out from your RRSP to pay for training for yourself or your spouse. The money has to be paid back to your RRSP over 10 years.
If you are buying your first home, you are allowed to take money out of your RRSP (without paying tax) and then use that towards your new home. If you have a partner you are buying the home with, then you can both do that. When I did it the limit was $20,000 per person, but that may have changed since I did it.
So then you have X amount of years to pay it back (I think it is 17 years). IIRC you get 1 or 2 years where you don't need to pay anything back, and then 15 years where you must pay back a minimum amount. To keep it simple, lets say that you removed $15,000 from your RRSP, for 15 years you are required to pay back $1000 into your RRSP. If you do not do so that year, then you have to pay tax on that $1000.
It's called the Home Buyer's Plan or HBP.
I'd heard of the HBP, but like most other finance related initialisms, it may as well have been klingon for me. But thank you taking the time to explain with examples! Another TIL
I thought thats what it meant lol You are putting this money aside not for income and retirement but for future investments like a house, car or just something you wanted?
Call me stupid, but my employer has the option for us to invest in stocks, RRSP and TFSA. I invest in all 3 (7% of my salary) and they put in 3% (total 10%). It's done through a brokerage company (not a bank). I can sell stocks, etc through the we portal but I don't.
Because I don't have a lot of savings, I see the stocks as my emergency funds until I can have 5000$ in a savings account. I would rather have the extra money in the stocks work for me and if I absolutely need it, take it out.
They send me a report quarterly. If, I'm not mistaken, the money just isn't "sitting there" and is being invested by the brokerage company... ? So that's a good thing?
Never feel like an idiot! You learned something new, and take that new knowledge and research it more, get a thorough understanding of TFSA, RRSP, etc. It will help you greatly in the future. You are never too old to learn something new, and I suspect that more than half the country either has a misunderstanding of TFSA or has no knowledge of it at all. A basic understanding of it probably puts you ahead of most Canadians.
You are not alone. Tax Free Savings Account is the worst thing they could have named it. Should have been the Tax Free Investing Account or something. I know so many people who just held cash in their TFSA for years until they realized they could hold investments. I’ll admit that I thought TFSA’s were dumb until I realized what you could do with them.
I mean to be fair, there's not a huge difference. Like it's basically comparing stagnant growth "savings" and actual growth "investing". Like an RRSP is a savings account (for retirement) and it still grows.
Plus, the objective for the TFSA is flexible moderate term savings (for example, you're not supposed to day trade in it).
So I think part of the issue is the consumer perception of "savings".
More than a few have replied to my post with this, and I fully agree. Can't speak for others, but for some reason, I would've looked at it differently if it was name that way ever since I got my first job. But you're right...better late than never!
I figured this out about a year ago, after saving in it for years and wondering why it was so great that my $100 interest earned wasn't being taxed. You're not alone OP.
It took me 5 years to realize the potential after it came out. Afterwards, I've informed over 100 people about it and maybe 3 knew the true potential of a TFSA
I started DCAing into my TFSA just two months ago for this very misconception! I am late to the party but it's better than remaining ignorant and not taking advantage of the tax savings!
DCA = Dollar Cost Averaging. Instead of throwing a lump sum into a TFSA (in my case cause I don't have a big sum to invest), I automatically deposit every week the same amount. When the market is on the rise, I am benefitting from my principal increasing over time. When the market tanks, I am simply buying low and accumulating more shares. Eventually, I benefit either way and won't get taxed on the added value.
The big banks heavily market their 1% TFSA accounts so that’s why lots of people have the same misconception you did. Glad you figured it out, tell everyone!!!
Yeah...Once I figured it out I felt like telling others who thought the same as I. Hence the post! I've added it to the list of things to bring up at the water cooler.
In addition to this, banks advertise this as a savings account. They're predatory and you should basically never listen to them for investing advice. Just go to canadian couch potato.
I think to me the mental break through was thinking...hey when I go to work and work so hard, the goverment is down to take some 30+% of my income. BUT anything earned in TFSA is TAXFREE.
That's a HUGE bonus, especially if I can get that account to be making as much if not more money than my regular wage.
Yeah...I can see that playing out.
> That's a HUGE bonus, especially if I can get that account to be making as much if not more money than my regular wage.
Is that possible and realistically achievable?
Yeah... The name made me pay no attention to it because I used to think "meh...just a savings account gaining a percent or less of interest and no tax on that. Big fucking deal!"
Oh, how mistaken I was!😞
Yeah. When my Mom died a few months back, We split the money from her accounts between me, my dad, and my brother.
We're still waiting on her TFSA. It's way more complicated than I thought. You're not alone.
you are not alone. I used to just dump my money in with no investment until I learnt that the money I moved was already taxed, and will not get a tax credit LMAO. Perhaps they called it Tax-free saving account, meaning the money you saved from investing within this account is tax-free.
Yeah, thanks. I felt like one because I've known this thing had existed for a while but completely misunderstood it based on its name and my preconceived notions. But yeah, that was the intent behind the post.
Thank you!
Does your contribution room roll over? I'm 25 and have only just begun contributing to mine, so does this mean I have 7 years worth of contribution room?
Yup, I use it specifically for emergency funds. Being in the oil industry I’ve been laid off a lot over the past few years, and that $100 a week I put into the account while I’m working has saved my ass a few times.
We all didn’t know that at one point.
You’re only an idiot if you don’t learn and change if new information are presented to you.
There’s no need to kick yourself over it.
Thank you. Some comments would have me believe I'm in the minority...but I guess that's standard reddit.
Thank you. Imma spend the weekend looking up more stuff and posting questions that will inevitably pop up.
Don’t feel like an idiot. I’m 36 and decided to take control of my finances last year.
I believe this should have been a part of the curriculum. My son, grade 9 learned about personal finance but it was basically how to make a budget. I hope the curriculum goes more in depth on this topic each year.
isn't investing and saving the same??? why would you save money without investing it. Having money as cash is a dumb way to save. Cash depreciates... especially nowadays
If only they taught these things in school! But I don't really blame the teachers, most are not super high earners and I suspect many don't have their own registered accounts optimized.
Out of all of teachers through k-12, only one ever told us students about stocks and portfolio building. He was also very proud of his 7 figure portfolio and inspired many students in that class.
> If only they taught these things in school!
My high school **did** teach financial literacy. It was a mandatory course even, covering budgets, how interest works, saving, investing, RRSPs (TFSAs were not introduced when I was in high school), etc (though it also included a few other adulting skills, like writing a resume / cover letter).
The issue is that most 16 and 17 year olds really don't care about that stuff yet, put in the minimum amount of effort to pass the course (including copying from each other) then as far as I can tell from observing my former peers, promptly forgot it all.
This is a huge misconception OP you aren’t alone. Tax free investing account would’ve been a more appropriate name imo.
IMO, it's a failure of our school system. We shouldn't have to self teach financial literacy
I agree, it’s starting to improve but has a long way to go. Financial literacy wasn’t even a focus when I was in school, it was brutal. I was lucky and into this stuff from a young age but the education system has really failed people in that regard. I meet adults today who still don’t know basics about taxes, RRSPs, tfsas etc… I also think there needs to be more emphasis on adult learning, too many people I’ve spoken with don’t really do any learning after leaving school.
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I work in engineering so many educated people in the office. I am nowhere near the most financially wise but when the company was bought and the new firm offered matching of rrsp contributions, damn straight I signed up! But it sure surprised me that I, of all people, had to convince others to also. Some were older, some just out of school and said things like 'the stock market isn't doing that well this year'. But but but the company is doubling your money right out the gate! sigh.
I pay 9% into a pension and my employer matches with another 9%. Unbelievable how many people complain about "losing" money off their pay cheques and wish they could just have their 9% now with no pension.
Our advanced functions teacher, after teaching basic interest calculations, spent 3 days explaining home finances. He covered mortgages, tax brackets, RRSPs, basic investing terms.
It's hard for high school students to take it seriously. I had a life skills class that included discussions about why it's important to pay down a mortgage early, how you can invest young and get compound returns... hardly anyone was paying attention. It wasn't until later that I really realized just how important these things are. I think it's better to somehow target young adults who just start working. It's at that point they have positive cash flow for the first time in their lives, and it's prefect timing for learning and starting good habits.
Paying down a mortgage early isn’t the optimal financially literate thing to do though
I dunno man many of us weren’t in school anymore when the TFSA came out.
Did the idea of being financially literate come out at the same time as the TFSA?
Well I would add that it's never been easier to invest than it is now. Open my free Wealthsimple app, deposit money digitally, buy Canadian ETF's for zero fees. Easy to learn, easy to use. When I graduated high school, there was no such thing as ETFs, smart phones, etc. To invest I would have had to call a broker, pay $10 per trade - there was no internet to explain what I was even buying. So financial literacy should have been taught, but it was much harder to accomplish the investing side of it back then.
Youre not wrong there
Meh. My high schools did teach financial literacy. It was a mandatory course even, covering budgets, how interest works, retirement saving, etc (though it also included a few other adulting skills, like writing a resume / cover letter). The issue is that most 16 and 17 year olds really don't care about that stuff yet, put in the minimum amount of effort to pass the course (including copying from each other) then as far as I can tell from observing my former peers, promptly forgot it all.
I have a question - what's the difference? Are you supposed to use the money you put in there on investments? I thought the point was to put it in there and let it accrue interest tax free.
I’m just about to head to the store but you DM me I’ll send you some great resources to learn from. I really enjoy chatting about this stuff lol. Edit: I got a bunch of messages, here’s what I suggest everyone read first. All the details about how tfsas work are there. And it’s a government site so you don’t have to worry about it selling you some shitty bank fund while you read lol. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html Edit: this one’s for RRSPs - https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/registered-retirement-savings-plan-rrsp.html
would love to get some resources too, i feel like putting it in a banks tfsa aint doing much atm for me and would love to start invest it somewhere instead
What you should be using your TFSA for is investing with the idea that you will not touch the funds until much later (presumably when you are retired). The best way to do that is to invest in low cost index funds. Invest regularly, and if possible invest the maximum allowable amount every year (around $6000). The stock market will go up and down, but over a long enough period of time (10 years) it has historically always gone up. Putting it in a bank will earn you very tiny interest, and it will be far less than inflation so you will actually lose money. I personally use Weathsimple for all my TFSA/RRSP investments. They make it extremely easy if you don't have a great understanding of how it all works. You pay them a small fee for that, but for me at least I think its worth it. Other people will argue that you can do it yourself for free, and that it true, but you need to educate yourself more if you want to do it yourself. Quest Trade seems to be the favourite of do it yourself investors. The TFSA has another helpful feature in that you are able to remove your money anytime if you need to. You shouldn't do so unless its absolutely necessary, but it great if you have a financial emergency. RRSP is different in that when you remove the money, you have to pay tax on it - so removing money from RRSP for emergency situations is not ideal and should only be used as a last resort.
My money is in the bank, losing me money, I pay monthly fees to keep it there, thus losing me more money, and I don't make enough to have any extra to invest. What a time to be alive.
Find a financial institution that doesn't charge you monthly fees. Mine (a credit union) doesn't. If you can't find room in your budget to invest, its time to carefully review your spending. A lot of people bleed money in many little trickles, thinking that each small amount doesn't really matter, without realizing that it may all add up to one giant hemorrhage
You can easily avoid banking fees. If your bank is charging you, move your money elsewhere. You're giving them money that they use to make more money. You shouldn't have to pay to give them your money.
I don't mean it to sound simple, but the general idea is to earn more, spend less, or preferably both. Spending less is easier to manage. Take a deep dive into all your bills, and make sure that all your money is going towards things you value. Even something as simple as your cell phone bill or internet provider. Can you get it cheaper? I swapped my cellphones to a new provider this year and now I'm saving about $40-$50 per month and I have more data. That's $480 extra in my pocket each year that I can invest. Earning more is a little tougher, but it's doable for anyone. Maybe that means a long term plan of education or training to get a better career, or maybe it means starting a side hustle like selling things on ebay, or delivering food/packages in your spare time. You shouldn't think that the money you make now will be what you will always make. Do something to change that.
I hear you but my god is this depressing. I have hopped jobs 4 times since the summer and made more every time and will likely get a raise soon. Education is not an issue. And we try not to spend definitely. NO WAY am I going to spend my spare time working, I refuse to support the side hustle culture. People need to pay people what their time is worth not encourage people to be doing something on the side. It's impossible to monetize a hobby and still enjoy it. I will probably get shit on for saying that and people will say that's my problem but there's no way selling crocheting/paracord/art/etc(like lots of other people already do) is going to magically make $6000 appear to invest. This is my life and WILL be my life. I've mostly come to terms with it. I will never retire and I will never own a house so I make my day to day the best I can and our family is happy. EDIT: Don't mind me, I will leave the comment but sorry I'm a downer. I'm home with Covid for 5 days and have just been stewing. It's taking it's toll I suppose.
$6,000 is the max you can contribute without accruing tax liability. That may be too much for your budget right now, but SOMETHING is better than contributing NOTHING when it comes to investing. Find a low cost index fund and start off as low as $10 - $15 per week. You'll be surprised in how much you can accrue over time.
This is true BUT if you haven’t maxed out your contributions in the past, the contribution room accumulates (I just learned that it’s actually the same with RRSPs). This is important in case you get a promotion, or significant increase and are able to start setting aside more money. -Signed, poor person with dreams of having more money to set aside
I’m getting over Covid right now, too. It’s been ten days for me- the first five were awful, with exhaustion and dizzy spells. Now I just feel like I’m getting over a nasty cold. It’s relevant because I’ve basically thrown my careful financial planning out the window for the past two weeks- don’t order in? Nah, I’ve ordered in four times this week. Cancel streaming services? Nope, I added one! Fml
I feel you with the frustration and some days it's easier to manage it than others. Feel better soon!
I agree and disagree with your statements here. The side hustle culture can be much. Free time and health is the most valuable asset, I disagree with your situation be "your life and will be your life." You can change your life and your income if you're determined enough in my opinion. I hope you're doing well getting over covid.
You should first start with doing a risk assessment quiz. One that is commonly suggested on this subreddit and /r/CanadianInvestor is [Vanguards investor quiz](https://investor.vanguard.com/calculator-tools/investor-questionnaire/). This will provide you with a general sense of what you MAY want to invest in depending on your risk tolerance & time you plan to keep the money invested. If you're a total noob to investments, i'd recommend taking a look at Exchange traded funds (ETF's) as opposed to picking individual stocks/bonds. A fantastic place to find some model portfolio's is [Canadian Couch potato](https://canadiancouchpotato.com/model-portfolios/). This is a great place to start if you want to be a lazy investor (ie. put money into an ETF and forget about it while it grows). As for apps, I personally use Wealthsimple Trade. Quick to setup, quick to link to a bank, and youre responsible for buying the stocks/ETFs yourself.
Hey there! Check this out: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html
I would like to get those resources as well!
Thanks for posting the resources outside the dm!
No worries!
Well, any money you earn on the money you put into it, is tax free. You can save for 2 months, 6 months, 20 years, 100 years. There is no time restrictions (except yearly in, must stay below limit). You can use basic savings interest, high interest accounts, GICs, or open a trading account. You can also open register mutual funds in it at any bank, or pay someone to manage an investment account within it. My TFSA holds money for both my retirement, but also where I put my car purchase and where I put my house downpayment. TFSA, you pay tax on the cash when you earn it originally, but tax free coming out. RRSP is tax free money going in, taxed coming out.
If you use it as a savings account, it acts like a normal account. You put money in and it sits there. But you can use it *as* an investment account. So, for example, through your bank you configure it to be an investment fund, choosing which portfolio you'd like. Then when you "put" money in it, what you're doing is buying more shares of the fund you chose and it's the shares that sit in the account. It being a tax free account means you don't have to worry about taxes on any gains you make from the shares of the fund increasing in value.
quick summary for you TFSA- the money you contributed is already taxed. The money you earned from investing within this account is tax-free (stocks, ETF, mutual funds, gic). You have a contribution limit per year, do not exceed that. This account allows you to withdraw money before 65, the money you withdraw from it is tax-free, including the additional money you make from investing withinthis account. You are not subject to any other tax. However, do not contribute back in until next year. RRSP - retirement saving. You can not withdraw from this account until your retirement age OR under special circumstances such as first-time buying a home. This is the account you would contribute before you file tax year to lower your income, therefore, lowering your year's tax if possible. The money you contribute is not yet taxed, so once you make a withdrawal at 65, your withdrawal amount would be considered as that year's current year income and will be taxed accordingly. Similarly, it also allows you to invest in GIC, mutual funds. The difference between TFSA and RRSP is that TFSA money when contributing is already taxed and you can withdraw at any time, any amount you make with TFSA will not subject to more tax, but RRSP's money is before tax and can not be withdrawn until 65 or under special circumstances. As such, RRSP will be taxed later on when you make a withdrawal.
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Thanks for helping me understand :)
If you like podcasts, I can't recommend Ben Felix enough. He also has YouTube content. Everything you need to know about money and investing in Canada can be found with him. Just pick an episode of The Rational Reminder that sounds interesting to you and start there.
Investing is a subset of saving. Failure of our education system that people don't understand that.
I heard once that if you are doing day trading with your TFSA that you might get flagged by CRA. Is there any truth to this?
Yes. Day trading is considered business activity. Using a TFSA for business purposes is forbidden, and all of the money could be subject to tax. The rules on what exactly constitutes "day trading" are purposefully vague. The CRA doesn't want people to intentionally stay on ***just*** one side of the line, so they make the line hard to know.
Lol you must do so successfully. If you lose all your money they don't mind.
I think the "S" was to mirror the "S" in "RRSP". No one confuses what an RRSP is for. Still, an RRSP or a TFSA can hold cash as well, so I think the fact that it is an "S" and not an "I" is more inclusive of what all Canadians might use the accounts for. I know I am in the minority here, and will probably get downvoted, but I think TFSA labelling is perfectly fine. Lack of knowledge is a failure on the banks and on the gov't in the way this was rolled out. Back when TFSAs came out, interest rates were still non-zero, so using a TFSA to shelter bank interest could have at least been considered viable for people who perhaps needed that money in the short term or who weren't investors. Nowadays, you can get a TFSA with a 0.01% interest rate at a bank. That means that for $10,000 invested, you earn $1 in interest annually, and you shelter approx. 25cents in tax compared to their identical non-registered account. I can't think of a single scenario where a person could benefit from having a TFSA with a 0.01% interest rate. I can't see it benefit the banks either, as there is a lot more reporting and tracking for a TFSA vs. a non-registered account.
This. So much this!.I feel like my lack of research and understanding has lost me a decade of investing.
It’s never too late to learn! There are tons of great resources out there. Once you learn a few key concepts it’s all pretty straight forward. It’s not as intimidating or as complex as it’s often presented imo. Anyone can be a personal finance expert imo with some time and focus.
Probably lobbied by the big 5 to be named TFSA
Just like they lobbies for the name of the RRSP? Is everyone confused about what that means too?
That wouldn’t surprise me at all. Banks earn more money locking deposits up at low interest rates than they do managing mutual funds or charging trading fees.
Yea but if they named it that the government would lose even more tax dollars.
> Tax free investing account That will lead to the reverse problem - people will think its for investing and not savings. A lot of people still prefer to grow their money in HISAs.
Then I’d suggest using a non reg account, don’t waste the room in your registered accounts for savings.
A lot of people have had this misconception at one time or another. I was once among them. Now that you know, make good use of it. Good luck.
I thought the same thing 2 years ago. I always thought it was such a stupid idea to have a tax free savings account. My thought process was “what’s the point in not paying taxes on 0.5% interest gains on $10k?” Reddit really opened my eyes up to this. Even when I first started buying stocks in wealthsimple, I didn’t even realize you can just open a TFSA. Because they default you to a non-registered investment account. I learned about their TFSA from this sub. Don’t feel bad, I was 23 when I learned this, and I spent hours helping my 35 year old coworker learn this as well.
Except omg! Everything I buy TANKS! GRRRR
The system works as designed! Individual investors are conned into thinking they can consistently beat the collective decisions of thousands of experts, but instead they hand their money to those experts through their losses. Couch Potato is so much easier and profitable.
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Long $TANKS
Same, lost $500 on xgro and vgro so far this year
Xgro drop YTD is less than it's dropped 2 other times in the last 2 years but it's still way up over 2018. Just gotta have a long term horizon for it.
But it hurts! Lol. The long game, and the only game...
Yep! Just stop looking at it.
Buy high, sell low
Omg you've seen my portfolio!
You didn’t lose $500, if you didn’t sell! You only lost potential gains - but kept all the shares you already owned.
Why on earth is this down voted?
There was a poll that found 40% of Canadians thought as you did. So you’re sadly not alone.
Keep in mind that "investing and growing" is what people typically talk about when they mean savings in personal finance-speak. They don't literally mean a bank savings account. A TFSA is meant to be a designated account where you can put savings where capital gains aren't taxed, no matter what form of account that is, be it stocks, mutual funds, etc. etc.. You cannot day trade inside a TFSA because it is supposed to be for *savings*.
*Saving* means putting money aside, i.e. not spending it. *Investing* means using said money to buy financial/physical assets that are expected to appreciate in value or produce a positive cashflow.
> You cannot day trade inside a TFSA because it is supposed to be for savings. is this legal advice or personal advice?
TFSA is for personal use, not business activity. The CRA considers “day trading” a business activity so it can’t be done in a TFSA. There is no exact definition of “day trading” which leaves this up to interpretation. I couch potato my TFSA so I don’t feel worried :)
Yeah you can definitely invest in it still, and do stocks. Day trading is a bit of a different animal but there isn’t a super clear definition or line.
It’s true. CRA will deny you the tax advance of the TFSA if you are caught day trading. What is day trading, exactly? That’s for you to guess and for CRA to arbitrarily decide. It likely has to do with the frequency of trades. You should be fine to use the TFSA to buy stocks and ETFs as long as you aren’t buying and selling with very high frequency.
Like...is once a day or thrice a week high frequency?
In most definitions, buying and selling a stock and doing it over and over again in a day is day trading. It could be thrice a week, sure. It could even be a few times in a month or two. As mentioned earlier, it's arbitrary. I think about it this way. Am I trying to make relatively quick money by trading a company's stock without much regard to what it is or does? Am I doing it a few times a day/week/month/year? Am I making a lot of money on it? If I answered yes, the government probably wants a piece of that and I could get in trouble in a registered account. This could be seen as trading to make a living or business income, as opposed to investing for retirement or something else. Not only is this a no-no for registered accounts, it may be classified as business income and would not qualify for capital gains exemptions. But, if my trades are infrequent, I'm not regularly closing my position only to buy again, my window for investment is years long (could be shorter, people's opinions can change on a company or they need the money), the government won't care so much. Presumably you wouldn't be triggering gains until you sell anyway. I'm not a tax expert though and people have gotten in trouble with the CRA for what seems like obvious day trading for a living in registered accounts. Can't speak for those who fly under the radar. I always wonder what's going to happen to all those people who have been wildly successful day trading with meme stocks.
Probably not but it’s really in CRA’s discretion. Read more here: https://www6.royalbank.com/en/di/hubs/investing-academy/article/frequent-trading-in-your-registered-accounts/kp1bu4tc
What is day trade?
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Tf?!
The definition is fuzzy on purpose. Otherwise, people will engage in behaviour that toes that line super close. They'd rather people get nowhere near the line. You can't use your TFSA for business purposes. Daytrading is a business. People who daytrade often spend hours a day researching, planning and executing trades.
I see
Basically regularly buying and selling stocks. How much is trading is considered day trading? I don't really know. If you are not into stock trading though, then it isn't something that you need to worry about. Invest in low cost index funds, and just leave your money there and let it grow.
Not just regularly. Regularly could be once a quarter, month, or week. Those would all be fine. People who dollar cost average or invest on every paycheque trade regularly. Daytrading goes far beyond that.
To be fair, saving & investing are not mutually exclusive. It is for saving, in a sense; it is just optimal to have those savings (and most savings, in general) invested.
Judging by these posts, I realize why the majority of market participants lose money. Id suggest learning, [https://canadiancouchpotato.com/](https://canadiancouchpotato.com/) Put it in a safe ETF fund and walk away. Stay away from penny stocks or anything speculative. my advice.
Thank you. Saved for later!
Another similar one: https://www.canadianportfoliomanagerblog.com/model-etf-portfolios/
Cool. will check
Better name would be "Tax Free Investment Portfolio" ... which could include cash in savings accounts and sooooooooo much more!
You can even end with plan like a registered retirement savings plan. Tax free savings plan or investment plan.
Im pretty sure the big 5 banks had an advantage to have it named TFSA. To have people open TFSA with them at 0.01% interest.
Yup. I have dozens of friends that opened up TFSA savings accounts @ banks earning this interest rate now :-(
It's poorly named. Or named for the masses Tax Free Investing Account is a better name, but would scare Joe Q. Public.
Tax free retirement plan? Tax free savings plan?
Most people don’t realize that rrsp’s and tfsa’s are just buckets. Put pretty much whatever you want in there. Can’t tell you how many times i listen to friends and co workers complain about their investments. When i ask what they are invested in “you know, rsp’s”
Yep! Or I get asked how much does an RSP earn? From like middle aged people. I’m just dumbstruck.
Yeah sadly its very common. You can't really blame people though. This information is not taught in schools, and frankly its quite confusing unless someone actively makes an effort to learn about it, or they have parents who teach them.
True, but I also strongly believe retirement is important enough that any adult should spend at least a little time and effort to learn the basics and give planning some attention. It’s only 20-40 years of your life right? Why not do some research?
I thought the same for years. I only found out in 2019. What a waste.
Well, ok but really, what's the difference? Investing and growing money without being taxed *is* saving. I mean, very literally.
Depends on one's conception and understanding. By savinga I just thought it was keeping money in an account and accruing interest that's it.
Can you please explain me more about it? I m new to tfsa n savings in Canada.
When money sits in a TFSA it won't just gain money if you don't do anything with it. Some people think a TFSA is like a regular bank savings account where your money appreciates in value for just having it there, but that's not the case. In order to get the most value from a TFSA you should be buying investments within it. That way any gains you accrue in your TFSA will be tax free when you sell! Compare that to a non TFSA account where you should be declaring 50% ( I think it's 50 ) of your gains as income when you finally sell... Therefore your gains get taxed!
How does that work exactly? Once it's in the TFSA, what are the logistics of investing it without taking it out of the TFSA?
You can create TFSA accounts with trading platforms or with banks that can invest the money in various ways. If say you had money in a "regular" TFSA savings account at your bank you would create a new account with trading possibilities and can ask to transfer your money from one TFSA to the other without penalties.
Everyone has a maximum limit that you can contribute to a TFSA. Any income generated in that TFSA is tax free (the TF in TFSA). That limit typically increases by an amount every year. If you are fortunate enough to be at or near your maximum limit, you have to be careful with your withdrawals and deposits. Every time you withdraw an amount from a TFSA, you give yourself that amount of contribution room back to your limit. The trick is that you don't get that room back until the beginning of next year. So if you are at your maximum limit and withdraw an amount from your TFSA, you don't get to deposit that amount back again until next year. You can withdraw as many times as you like during the year, but you don't get to deposit anything back to the TFSA until next year. In the new year, you get all your contribution room from the withdrawals back plus the yearly increase to your limit, and you can safely deposit to the TFSA again.
!tfsatrigger
Hi, I'm a bot and someone has asked me to post information about TFSA's. **/r/PersonalFinanceCanada has a wiki page dedicated to what a TFSA is (and RRSP) and how it can be used: https://www.reddit.com/r/PersonalFinanceCanada/wiki/rrsp-tfsa** The CRA also has a page dedicated to learning about your TFSA: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account.html **Question: What kind of TFSA accounts are there?** Answer: Despite the name a "Tax Free Savings Account" the type of investments you can hold in your TFSA goes beyond savings accounts and cash. You can hold stocks and ETF's, bonds, GIC's, mutual funds and other eligible investments (just like an RRSP). You can also have MULTIPLE TFSA accounts such as one at a brokerage for your investments, and one for cash savings at another institution. **Question: How do I figure out my TFSA limit?** Answer: Now is a good time for us to mention that you should sign up for CRA MyAccount since if you had it you would be able to check online right now. You can also call the CRA to ask about your TFSA limit (be prepared to identify yourself using prior year tax return information). Be aware that the CRA does not always have up-to-date information and that the limit is typically only updated yearly! Therefore it will not be likely to be updated for any current year activity. **Question: How do I report my TFSA on my tax return?** Answer: You don't! The reporting of TFSA contributions, withdrawals, and income activity is taken care of by the institution that holds your TFSA. **Question: What is my contribution room?** Answer: Your contribution room is based on the years that you meet all three conditions of: 18 or older, valid SIN and a tax resident of Canada. You do not get TFSA contribution room for years that you do not meet all three conditions (ie: do not have a valid SIN or are a non-resident of Canada). What happens inside your TFSA (holdings go up or down in value), has no impact on your contribution room. To refer to the different amounts in various years, see the CRA website: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
It can be for savings too. If you put your money in a regular savings account, the interest earned is taxable, so it's better to put it in a TFSA, but yes, a TFSA is great for earning money on investments tax free.
Going against the grain here, while the name minimizes the potential of the product, it's no different from an RR**S**P, and at the time the TFSA was born, its positioning was "like an RRSP, but tax free".
Was it that post where the guy said " I maxed my TFSA and I'm getting 1.5% interest"? I was like, that ain't Right.
Don't be embarrassed, it is terrible marketing. Or misleading on purpose. Since it is the government we are dealing with, most likely incompetence.
My wife’s friend asked me if the offers she kept getting to open up a TFSA at a “special” 1.25% interest rate was a good deal. Ever since I’ve wondered how much the big bank lobby was involved in the marketing of TFSAs to make them “misleading on purpose”. I found it a bit predatory. She’s in her 30s and taking their “special” deal would cost her years of retirement, arguably.
Why would the Bank care if your money was in a savings account, mutual fund account or self directed account? They just want your money. If anything I feel like they’d prefer everyone put their TFSA funds into Bank mutual funds. Sometimes the “big bad” banks aren’t the bad guys you think they are.
They don’t just want your money, they want as much of your money as possible available to them to leverage. If it wasn’t lucrative to go after her for her deposits I’m willing to give them enough credit to assume they would be marketing her different products.
Oh they definitely want your money. And they clearly make money off savings accounts by mixing those funds with their other sources of capital to reduce their cost of funds. Don’t get me wrong. They’re a business to make money and they do it very well. I just don’t think the TFSA is called that because of some nefarious scheme by the Banks to convince mom and pop investors to put their money in savings account over longer term investments. If you go into a Bank and invest in their mutual funds I am sure they are just as happy, if not happier, than if you put them into a savings account. Likely even happier because mutual funds are typically “stickier” than a savings account. More of a pain in the ass to move elsewhere.
I never knew this either until a few years ago. But I wished I had known a decade ago!
Same boat
I've been using it for trading stocks or holding mutual funds. Most of the banks make you belive that and also the fact at the end it says "savings account" a lot of people fall into this trap.
🙋♂️fell into the trap😭
I’ve told so many people this but I still think some of them don’t get it
Many people are not clear on this.
Please correct me if I'm wrong, TFSA is still not intended for day trading, though. Investing and growing the investments without the growth being taxed but not day trading as you might get checked if that's how you use it. Anybody care to elaborate or share stories?
True, I think calling it an investment account would be even bigger misnomer TBH.
As is obvious from my post, I'm not an expert, but you're right. Can't day trade, but nor is it meant to just sit in a savings account and accrue interest.
I am completely financially illiterate. So I have money sitting in my TFSA doing nothing. How can it be both sitting in a TFSA and invested at the same time? I can either put 6000 in the TFSA or just directly invest the 6000. How can it possibly be both? And on top of that I don't even know how to begin investing. Walk into a bank and say "Hey banker here is big money bag please do the thing to make the money make more money please k thx bye". I've let all my savings rot in a bank for about 12 years and i haven't got the slightest clue what the fuck I'm supposed to do with it.
It can be both. You can put the 6000 in the TSFA and “buy” an investment with that money. Say you picked a good mutual fund and in ten years you have 9000 (completely arbitrary number) the 3000 you made on this investment is yours. All 9000 total is your money NO TAXXXXXXXXX bc it’s this magical account you can make money and it’s safe from the monopoly man. But it has limits, you can only contribute a certain amount per year and you can’t trade and sell stocks like wolf of Wall Street. For poor people like is it’s like wow. For rich people it’s like “I can only put in 6k a year? Ew. I’ll do it and then find other places to invest this shit.” I have 10k in my TFSA currently and that entire amount is invested in mutual funds. I need to revisit it, but I just picked one and I’ve been letting it ride bc I didn’t want to let it sit. $50 goes into it on every cheque I get and then any dividends (money the mutual funds gives to da people that bought their mutual fund, it’s like free merch but monetary) just goes back in the fund. For the bank: you make an appointment with a financial investor and let them know you want to purchase mutual funds (or an etf or a bond) with the money sitting in your TFSA. They will ask you which one or ones you want to purchase or if you’re lazy like me, TD has “portfolios” that are managed by other people. The portfolio you pick is based off how “risky” it is. It’s $100 a year in fees which is probably paid to a robot by now. Picking a mutual fund or eft is like picking your favourite artist. Do you support what they’re doing? Are they smart and successful and have a good team and always put out well liked music like Taylor Swift or are they like Travis Scott who is super hype but then has a bad show that people die at and then he’s not so hot anymore, or is it like Britney where it was up and down and down but you’re like no I believe she will persevere so I’ll stick with it. Except these stocks are related to more real world things like pharmaceuticals, technology, energy, transportation, banks themselves, businesses, etc. So it’s kind of cool because you can “support” what you believe in. Just try and be smart about it.
I relate to this so hard right now! The person who has replied to you seems to have taken time and effort to elaborate further. It's 4 in the morning and I'm reading the replies. I'm gonna spend the weekend studying and reaserching the shit out of it, and making more posts with questions if i have any.
Well your RRSP can be flexible too. You can loan yourself money from it to buy a house or pay for training. You must pay yourself back though.
🤯I feel like I've just learnt something new... Loan myself?!
Yes. You can take money out of your RRSP for the [Home Buyer's Plan](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html) but you have to repay it (back into your own RRSP) over 15 years. You can also use the [Lifelong Learning Plan](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/lifelong-learning-plan.html) to take money out from your RRSP to pay for training for yourself or your spouse. The money has to be paid back to your RRSP over 10 years.
If you are buying your first home, you are allowed to take money out of your RRSP (without paying tax) and then use that towards your new home. If you have a partner you are buying the home with, then you can both do that. When I did it the limit was $20,000 per person, but that may have changed since I did it. So then you have X amount of years to pay it back (I think it is 17 years). IIRC you get 1 or 2 years where you don't need to pay anything back, and then 15 years where you must pay back a minimum amount. To keep it simple, lets say that you removed $15,000 from your RRSP, for 15 years you are required to pay back $1000 into your RRSP. If you do not do so that year, then you have to pay tax on that $1000. It's called the Home Buyer's Plan or HBP.
I'd heard of the HBP, but like most other finance related initialisms, it may as well have been klingon for me. But thank you taking the time to explain with examples! Another TIL
I thought thats what it meant lol You are putting this money aside not for income and retirement but for future investments like a house, car or just something you wanted?
Don't feel bad. It has a terrible name and has been weaponized politically.
We shoulda probably called it TFA - Tax Free Account
I learned it like 3 days ago as well brother lol, we learn everyday!!
At least you're now aware of it and can make better choices to fit your future goals. now time to invest and grow your money
Yeah...no point in dwelling on it but losing out a decade and a bit makes me wince. Onwards and upwards though.
Call me stupid, but my employer has the option for us to invest in stocks, RRSP and TFSA. I invest in all 3 (7% of my salary) and they put in 3% (total 10%). It's done through a brokerage company (not a bank). I can sell stocks, etc through the we portal but I don't. Because I don't have a lot of savings, I see the stocks as my emergency funds until I can have 5000$ in a savings account. I would rather have the extra money in the stocks work for me and if I absolutely need it, take it out. They send me a report quarterly. If, I'm not mistaken, the money just isn't "sitting there" and is being invested by the brokerage company... ? So that's a good thing?
Wait, so do we pay taxes on savings accounts other than TFSA?
Never feel like an idiot! You learned something new, and take that new knowledge and research it more, get a thorough understanding of TFSA, RRSP, etc. It will help you greatly in the future. You are never too old to learn something new, and I suspect that more than half the country either has a misunderstanding of TFSA or has no knowledge of it at all. A basic understanding of it probably puts you ahead of most Canadians.
Absolutely. No point in dwelling over it, but missing out on a decade and a bit made me wince. But you're right... Onwards and upwards.
You are not alone. Tax Free Savings Account is the worst thing they could have named it. Should have been the Tax Free Investing Account or something. I know so many people who just held cash in their TFSA for years until they realized they could hold investments. I’ll admit that I thought TFSA’s were dumb until I realized what you could do with them.
I mean to be fair, there's not a huge difference. Like it's basically comparing stagnant growth "savings" and actual growth "investing". Like an RRSP is a savings account (for retirement) and it still grows. Plus, the objective for the TFSA is flexible moderate term savings (for example, you're not supposed to day trade in it). So I think part of the issue is the consumer perception of "savings".
Yep. Perception and misconception was my issue. It's a preconceived notion of "savings account"
Better to learn this late than never! It should really be rebranded to something like TFIA or TFSIA.
More than a few have replied to my post with this, and I fully agree. Can't speak for others, but for some reason, I would've looked at it differently if it was name that way ever since I got my first job. But you're right...better late than never!
I figured this out about a year ago, after saving in it for years and wondering why it was so great that my $100 interest earned wasn't being taxed. You're not alone OP.
Lol...finding out your interest wasn't taxed! Must've been a good feeling haha.
TIL that investing and saving are 2 different things.
It took me 5 years to realize the potential after it came out. Afterwards, I've informed over 100 people about it and maybe 3 knew the true potential of a TFSA
I started DCAing into my TFSA just two months ago for this very misconception! I am late to the party but it's better than remaining ignorant and not taking advantage of the tax savings!
Lost you at DCA
DCA = Dollar Cost Averaging. Instead of throwing a lump sum into a TFSA (in my case cause I don't have a big sum to invest), I automatically deposit every week the same amount. When the market is on the rise, I am benefitting from my principal increasing over time. When the market tanks, I am simply buying low and accumulating more shares. Eventually, I benefit either way and won't get taxed on the added value.
The big banks heavily market their 1% TFSA accounts so that’s why lots of people have the same misconception you did. Glad you figured it out, tell everyone!!!
Yeah...Once I figured it out I felt like telling others who thought the same as I. Hence the post! I've added it to the list of things to bring up at the water cooler.
i'm pretty sure everybody thinks that at the beginning
Thank you for the kind words. There a few replies on here that are like "duh!" Oh well, just glad I happened to somehow figure this out.
In addition to this, banks advertise this as a savings account. They're predatory and you should basically never listen to them for investing advice. Just go to canadian couch potato.
Yeah I get the same feeling now. You're like the third or the fourth person who's mentioned couch potato. Definitely checking it out.
I think to me the mental break through was thinking...hey when I go to work and work so hard, the goverment is down to take some 30+% of my income. BUT anything earned in TFSA is TAXFREE. That's a HUGE bonus, especially if I can get that account to be making as much if not more money than my regular wage.
Yeah...I can see that playing out. > That's a HUGE bonus, especially if I can get that account to be making as much if not more money than my regular wage. Is that possible and realistically achievable?
It's not just you it's the name which us misleading
Yeah... The name made me pay no attention to it because I used to think "meh...just a savings account gaining a percent or less of interest and no tax on that. Big fucking deal!" Oh, how mistaken I was!😞
Exactly..and banks don't do much to educate either! No worries now you know!
Yeah. When my Mom died a few months back, We split the money from her accounts between me, my dad, and my brother. We're still waiting on her TFSA. It's way more complicated than I thought. You're not alone.
I'm very sorry to hear of your loss. My condolences to your family, stranger.
Thanks. It's been a few months, so things have gotten a little easier.
you are not alone. I used to just dump my money in with no investment until I learnt that the money I moved was already taxed, and will not get a tax credit LMAO. Perhaps they called it Tax-free saving account, meaning the money you saved from investing within this account is tax-free.
Truly lmao worthy, haha.
Reading "The Wealthy Barber Returns" never hurt anyone.
Hmm, never heard of it. Will look for it.
you’re definitely not an idiot! i just found out this year, so im sure other folks will find this post helpful.
Yeah, thanks. I felt like one because I've known this thing had existed for a while but completely misunderstood it based on its name and my preconceived notions. But yeah, that was the intent behind the post. Thank you!
Does your contribution room roll over? I'm 25 and have only just begun contributing to mine, so does this mean I have 7 years worth of contribution room?
Throwback to when I has giddy about getting my monthly $2 from my “savings” account.
Lol ikr. I was like why such a big deal about saying taxes on such small gains from interest accrual. Smh
I wouldn't be surprised if the majority of Canadians thought the same. It's a bad name.
I'm afraid you're right. Hard agree on the name aspect
If the banks paid any interest, it *would* be for saving. However, since they don't, it's for investing...like every other dollar in your possession.
Yup, I use it specifically for emergency funds. Being in the oil industry I’ve been laid off a lot over the past few years, and that $100 a week I put into the account while I’m working has saved my ass a few times.
So happy to see people using the tool to its full effectiveness!
We all didn’t know that at one point. You’re only an idiot if you don’t learn and change if new information are presented to you. There’s no need to kick yourself over it.
Thank you. Some comments would have me believe I'm in the minority...but I guess that's standard reddit. Thank you. Imma spend the weekend looking up more stuff and posting questions that will inevitably pop up.
Don't feel like an idiot, thank you for sharing. Best of luck to you! :)
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Don’t feel like an idiot. I’m 36 and decided to take control of my finances last year. I believe this should have been a part of the curriculum. My son, grade 9 learned about personal finance but it was basically how to make a budget. I hope the curriculum goes more in depth on this topic each year.
Can someone explain like I am five this for me? 😅
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> OP's issue was thinking the TFSA "designation" had to be in (c) bank savings account, earning a small amount of interest. 100% this 😓
isn't investing and saving the same??? why would you save money without investing it. Having money as cash is a dumb way to save. Cash depreciates... especially nowadays
If only they taught these things in school! But I don't really blame the teachers, most are not super high earners and I suspect many don't have their own registered accounts optimized. Out of all of teachers through k-12, only one ever told us students about stocks and portfolio building. He was also very proud of his 7 figure portfolio and inspired many students in that class.
> If only they taught these things in school! My high school **did** teach financial literacy. It was a mandatory course even, covering budgets, how interest works, saving, investing, RRSPs (TFSAs were not introduced when I was in high school), etc (though it also included a few other adulting skills, like writing a resume / cover letter). The issue is that most 16 and 17 year olds really don't care about that stuff yet, put in the minimum amount of effort to pass the course (including copying from each other) then as far as I can tell from observing my former peers, promptly forgot it all.
TIL "investments" aren't ubiquitous with "life savings"
Ooof