Most people can’t contribute to their RRSP, so where would they find the money to contribute in their TFSA

They are better off paying down their credit card first!

disclaimer; I don’t have one… contributing to the max of my RRSP…

I also have my TFSA at QT, low fees. Just make sure you turn off all those paper statements from QT and Penson Financial. They charge you a fee for those as well.

Adam

I loaded them up with REITs, a proxy-index with 3 REIT stocks in each account to give us some pretty good diversification within the sector. We also turned on the synthetic DRIP feature to repurchase additional shares at no cost.

Total fees were about $40 for 6 trades so only a 0.004 MER and I’m happy to report our accounts are up 51% and 53%! $5000 of tax free profits sure beats the $100 we would have gotten from interest.

I think that anything that gives people a kick in the butt to start saving again, instead of going back to “the old ways” of spend-spend-spend is a good thing.

Actually that’s a good point. Depending on what your investing in the TFSA the time to fill out the paperwork might not be worth the savings for a given year. Yet that is where people are waiting for no good reason. The TFSA’s strength is in compounding interest so regardless of how poor the rate is starting sooner than later is better.

Adam,

Feel free to look it up, but it is true. You get $5000/yr contribution room regardless of if you open one up or not.

James,

You had some excellent points. Fees on these accounts are critical that is why I’m with Questrade for these accounts. Also diversification is near impossible with such a low amount in the first year.

I did something similar to James and mainly moved over existing investments in my taxable accounts to shelter future capital gains, distributions and dividends. I’ll likely be doing an analysis at year end to confirm tax savings but on capital gains alone I’m over $400 in savings this year.

Tim

But, had that not been the case, I probably would not have rushed out to get one.

First… your contribution limit grows regardless of having an account, so that is not a worry.

Second, assuming the TFSA is used for retirement savings, instead of emergency or planned spending savings… there is no significant difference between money in an RRSP or money in a TFSA… AS LONG AS you end up with the correct ratio of TFSA funds to RRSP funds at retirement that will allow you to miminize taxation and maximize government sponsored pension income. I have a pretty complicated spreadsheet that clearly showed that to meet my retirement goals, maximizing my income, I would need to stop funding my RRSP at age 41 and start funding my TFSA at 36, assuming my current RRSP contribution and a maximum unindexed TFSA contribution.

Everyone’s situation will differ, but TFSAs are not necessarily the best vehicle NOW.

Something else to consider how unattractive TFSAs are (relative to RRSP). The easy TFSA (GIC, HI savings) yeilds are peanuts, hardly worth even saving the taxes on. Using it for equity investment may bring a high management cost). A single $29 trade commission is 0.58% (or 8x the VTI MER) on the max $5k 2009 contribution. And a single holding is not exactly wise from a diversity perspective.

I would bet people with unhealthy financials are delaying getting TFSAs because they are paying off debt. People with healthy financials are delaying until their headroom makes a TFSA more lucrative than the RRSP. And the bulk of the current TFSAs are people in the middle of the road that are using them as short term savings vehicles, and maybe didn’t realize that the $5-$10 they are saving in taxes is hardly worth the setup time.

I opened one a while back, filled with stocks, and I’m sure grateful for the account. People really seem to link the account to cash only (possibly because of the name).

Even if people aren’t interested in investing in the stock market, bonds – with reasonable 3-8% annual returns would be a great, conservative holding for the account.