17 TFSA Mistakes YOU MUST Avoid (Tax-Free Savings Account)

super quick before we get into the video today this september my dad and i were invited to speak live and in person at the money show conference over in toronto come out come meet us live and in person show your support link will be down below this video completely free to attend dates are up on the screen i can't wait to see you guys there now let's get into the video so today we're going to be playing a fun game to see how much you know about the tfsa and how many of these common mistakes you may or may not be making we've broken this down into five different levels going from easiest to hardest and if you know everything in this video today i'm very impressed you can let me know how far you get down in the comment section below but if you guys enjoyed this video give it a thumbs up this should be fun let's start with mistake number one this one's a gimme for anybody watching this video do not call it the tsfa the tsfa is just the wrong thing to be calling it it is the tax free savings account and again we're just getting started off lightly here because the first real mistake that i believe comes across when talking about tsa tfsas i almost said it there but it's quite common knowledge that you have to be 18 years of age to open a tax free savings account now although that is partially correct in provinces such as bc new brunswick that's an n newfoundland i'm just going to put nf and the northwest territories nwt is what i'm gonna put the legal age or the age of majority to actually open up a tfsa is 19. in our next section we're going to be seeing how much you know about contribution limits and this will come back into play but moving on into number three how many tax-free savings accounts can you have so many people out there think that you can just have one tfsa that is a mistake there is no limit to how many tax-free savings accounts you want to open if you want to open two three four for whatever reason maybe section up your money maybe have one with this provider one with this provider you can have as many tfsas as you want but one thing to understand is of course your contribution room does not multiply if you have two accounts you don't get double the space it is all under one umbrella and you can essentially split that up between accounts number four this one's important thinking that you can only open up a tfsa at the bank going to td bank going to royal bank going in speaking with a teller and asking them to open up a tfsa in the modern day it is in my personal opinion that there are far better solutions to open up a tax free savings account than go into your bank i prefer platforms like quest trade wall simple even eq bank is another option that we talk about on the channel here you have far more control they are far more user-friendly and i think in the modern day it makes so much more sense to do that but just understand you can open up a tfsa outside of your bank and in fact i think you actually should now moving on to number five i'm gonna put a star beside this one because this is my in my opinion the most important of the bunch today it is a major mistake to think that the tfsa is a savings vehicle only the tfsa is far more powerful than that and it should be used for investing purposes it should be used to grow our money and to buy assets like stocks bonds etfs gics you name it we can do all of that within the tfsa and it's such a common mistake to just leave cash in there you really are wasting a massive opportunity to actually grow and invest your money if you're only using the tfsa for a savings account now if you knew all these congratulations you've passed level one again this was the easy one on our list let's move on to the most common mistakes involving contribution limits this is what we're gonna call level two okay so we're kicking it up a notch here let's get into it starting with number six we now know that in certain provinces and territories we have to be 19 to open up a tax rate savings account well does that just mean that for those individuals just based on where you live we have just lost a year's worth of space we just got the short end of the stick and people in ontario for example have it better off than us no that is a mistake to think that because with the tax-free savings account we start accruing space at 18. although we may not be able to actually open up a tfsa in the year that we turn 18 we start accruing space and in theory next year when we turn 19 we would actually have two years of contributions banked up as of today that'd be about six thousand dollars plus six thousand dollars so although you can't open it right away we are occurring space and this goes for any individual out there if you're old enough and you have never contributed to your tax free savings account you will have been building up a ton of space any unused space can be carried forward you're essentially just banking up all your contribution room but it is a mistake nonetheless to think that unused space has gone wasted number seven this is an important one not tracking your contribution limits yourself do not rely on the government do not rely on cra to do this for you now there are various tools online such as cra my account where they will kind of give you this information it's possible that depending on what brokerage you use they will also kind of keep track of this but in reality it is not their job to track your contribution space so the onus is on you as the investor to make sure you're on top of your contribution limits i would highly recommend using an excel spreadsheet or just jotting it down on a piece of paper so you're up to speed with that number eight gains affect your contribution room this is one of the most common questions that i get on this channel to this day and it is a mistake to think that the gains affect your contribution real what i mean by that is that if you put money into your tfsa and your investments grow whether that's from capital appreciation whether that's from dividends if you multiply your money within the account from your investments doing well that does not affect your tfsa contribution room for a brief example let's assume that you have fifty thousand dollars worth of contribution room if you deposit ten thousand dollars into the account and it grows to fifty thousand dollars that does not affect your space in fact in this given example you still have forty thousand dollars of additional contributions that you can make into your account understand that the growth within the tfsa does not affect your room it is strictly talking about how much money we can deposit into this account now mistake number nine very very important one here making withdrawals and contributions in the same calendar year let me explain what i mean by this with the tfsa we have so much flexibility in terms of what we do with this account we can withdraw this money pretty much whenever we want completely tax-free it does not get added to our income we can take out twenty thousand fifty thousand one thousand whatever we have and want to take out we can take that out and we actually get to recontribute that amount back but in the next calendar year let me give you an example if in 2022 i withdrew 30 000 only as the calendar year turns over into 2023 so as of january of the next year i would get that whole 30 000 worth of space added back to my contribution room where i could then put that back into the account but the mistake happens when you recontribute in the same year so you take money out you think that you can put it back in but you've already essentially capped out your contribution limits then if you recontribute in the same year you actually come into the problem of over contributing which is number 10 and a very important one we have to know our limits when it comes to the tax free savings account because anything in excess of our contribution limits will be subject to a penalty or a fee of one percent per month on the excess amount i know that doesn't sound like much but it really can add up that's again why it's so important to track our contribution limits to know where we are and if we are going to be withdrawing we make sure that we wait till the next calendar year to put that money back in let's move on now into level three and talk about investing strategy mistakes that we see made within the tax free savings account level three mistake number eleven let's keep this short and sweet no day trading allowed in the tax-free savings account if you're going to be a day trader don't use the tfsa just go open up a margin account because the cra can come and audit your account and if they think that you are trading too frequently and this is a little bit ambiguous because there isn't a set number of trades or requirements that they put out online it just comes down case by case but if they deem that you are day trading in tmsa you can lose the taxable benefits of the tax free savings account it comes down to determining whether they deem you or using your tfsa to carry on a business if so your gains can be taxed strictly as business income this one's short and sweet do not day trade in a tfsa mistake number 12 non-eligible investments up on the screen what you're looking at is a list of permitted investments as mentioned you can hold cash mutual funds securities listed on exchange aka stocks as well as etfs gics bonds and certain shares of small businesses although less common just be aware that things such as land such as general partnership units antiques artwork these are all deemed non-eligible and yes in some people's eyes these may be in investments they are not an investment to be held within the tfsa mistake number 13 is not being aware of the 15 withholding tax on u.s dividends i say u.s dividends here but in reality this applies to actually foreign dividends it's just that u.s would be the most common for canadian investors i'm not saying that it's a mistake to go out and buy u.s dividends but it's a mistake to not be aware about them what this withholding tax means is that when we receive dividends from a u.s company they will withhold or 15 of the dividend will be withheld we are not going to receive a tax lift we do not have to pay any tax at the end of the year this is a tax-free account we will just be receiving 15 less of the dividend if you were looking in a glass bubble if you had let's say you were comparing a canadian dividend to a u.s dividend 15 of that would be withheld you can factor that into your own decisions i've done countless videos talking about withholding tax i don't think that it's a reason to not invest in u.s stocks that's just a personal opinion you can make your own choices mistake number 14 this is one that i really want our younger viewers to pay attention to thinking that you must be super aggressive within your tfsa i actually got a comment on my last video from someone named deep value co i was talking about how i plan to build my tfsa up with a dividend growth investing strategy reinvesting dividends letting that compound over the years nice slow steady the way that i think investing should be done he left a comment saying or you can hit a few home runs on a few micro caps and compound at 20 and target 100 million by 60. perhaps less likely to work but far more fun if it does well let's just leave it as that perhaps less likely to work i do totally agree with that sentence and of course wouldn't we all have to compound our investments at 20 over the next number of decades if that were the case you would be one heck of an investor and you'd be sitting along the likes of the warren buffets in the world actually they'd probably be asking you for what your secrets are case in point is that especially with younger investors they think that the tfsa is this tax-free room that they want to be super aggressive with what ends up happening is they end up buying duds they end up buying meme stocks and when those stocks die and they never come back just understand that you lose that contribution space forever moving on into level number four we're talking about tfsa account structuring mistakes this is going to be the most technical section of the video these are minor changes but they have significant impacts starting with mistake number 15 not naming your spouse as a successor holder now there is a very big difference between naming your spouse as a beneficiary versus a successor a beneficiary just fyi you can name anybody to be a beneficiary really you can name your kids you can name your spouse you can name a sibling for that matter like when you die who is this going to go to there is paperwork involved there are forms that you have to fill out and there is actually some pretty serious complexities that go into it when someone is designated as a beneficiary by simply structuring your spouse and this only applies to your spells you can't do this for your kids but your spouse or technically common law partner you can set them up as a successor holder and what that means is that upon death your tfsa will essentially just go straight into their hands they'll be able to have their tfsa and yours you can trust me on this guys it is worth taking the time to go to your brokerage or to your bank and set them up as a successor holder very very important number 16 not contributing to your spouse's tfsa because contributions to the tfsa are made with after tax dollars there's nothing to say that if you are the higher income earner in the family why not just give your spouse a little bit of money to pop into their tfsa as a family this is probably the right thing to do number 17 this is a very important one when changing institutions let's assume that you say well i want to switch tfsas i don't like question anymore i want to go to well simple i don't like royal bank it's time to switch to one of the biggest mistakes people make is simply cashing out or withdrawing the tfsa again we talked about this during the contribution limits we don't want to do that instead what we want to do is we want to make a transfer and the two transfers that you will come across is what's called either an in-kind transfer essentially moving the portfolio as is all of the securities the entire portfolio will just be shifted to the new institution or if you don't want to do that you can also do what is called an in cash transfer where they will essentially sell all the investments within the tfsa if you're wanting to kind of start from scratch or start fresh and then in the new tfsa you would just have a bunch of cash all of the proceeds from the sales but if you do it from a transfer standpoint like that you will not be messing around with your contribution limits with your contribution room if you are changing institutions make sure you do a transfer rather than making a withdrawal now in finishing this video off i hope you guys have been enjoying and learning a thing or two about tfsas if you have make sure to like the video and as well drop a subscribe but mistake number five i've got this in big bold letters here it is the simple case of not maxing out our tfsas if we want to do what's right for our futures we need to make a little bit of sacrifice today and do whatever we can to max out this very very precious account now i know for a lot of you guys you may be thinking well that's so tricky how am i gonna do that well let's break it down on a year by year basis right now we get an additional six thousand dollars worth of room each and every year that's five hundred dollars per month which would get us at 6 000 per year i'm gonna break that down even one further and say 250 per pay period i hope you guys can see that there but in order to max out our tfsas and hit that six thousand dollars of new space every year if we can commit to 250. per pay period 250 every two weeks it may require cutting back on the netflix accounts it may require less uber eats less alcohol or wine on a monthly basis but my challenge that i want to leave you off with this video is to do whatever you can to max out this account and 250 per pay period is very very manageable if you take this stuff seriously in my last video i talked about how i plan to build a million dollar tfsa we went through the projections we went through the numbers and it is critical that we are doing whatever we can to maximize this account year after year after year at the end of the day i'm not going to call it a mistake to not be maxing out your tfsa i understand that everyone is coming from different positions but i am curious to know throughout this entire video how many of you were properly using your tfsa or were aware of everything that we talked about today please don't hesitate to drop a comment down below let me know how far you got in this challenge and maybe what were some of the new things that you did learn as mentioned if you did enjoy this video a thumbs up goes a long way make sure you are subscribed to the channel and as always of course if you're looking to learn more about the stock market check out the investing academy we work with thousands of people all across the country just like yourself helping them get on top of their finances helping them learn to invest and doing so in a community environment it is an absolute blast you can learn all about that down in the description below but as always i thank you guys for watching i hope you enjoyed and i'll see you in the next video you

Channel: Beavis Wealth

Views: 324,152

Keywords: tfsa explained, tfsa investing, tax free savings account, what is a tfsa, tfsa mistakes, tax free savings account canada, tfsa investment, tfsa canada, tfsa mistake, tfsa investment options, tax-free savings account, tfsa mistakes to avoid, tfsa contribution limit explained, tfsa account, tfsa mistakes in canada

Id: HjOFhFOlHFg

Length: 15min 30sec (930 seconds)

Published: Fri Jul 15 2022