5 TFSA Mistakes YOU MUST Avoid

hi my name's adam welcome to the channel thanks for joining us today today we're going to talk about five tfsa mistakes that we see people make all the time so people coming into our office i would say the majority if not all of people make at least one of these mistakes that we're going to talk about in the video today if you haven't already subscribed to the channel hit the subscribe button below it takes one second it costs you nothing and if you enjoy these videos make sure the thumbs up it really does help get these videos out to more people helps with the youtube algorithm and as we know more canadians need to hear good quality content how to invest better retirement financial estate and tax planning so thank you for joining us today let's dive into it money mistake number one is around beneficiary designation so with the tax free savings account there's two ways to list a beneficiary one is a beneficiary another is a successor holder so if you have a spouse or common law partner make sure to list a successor holder not a beneficiary what's the difference okay either way so let's say jim and sally let's say jim passes away and sally is listed as the beneficiary on the tfsa okay she will get the money as a beneficiary but she could only put that money into her tfsa if she had the contribution room okay if sally was listed as a successor holder on jim's um tfsa then she'd actually be able to lump it into hertz even if she didn't have the contributioner okay so let's say the max room right now is 75 500. so let's say they've both invested and it's grown a bit to 80 000 so they both have an 80 000 tfsa okay so again jim passes away if they're listed as if sally's the beneficiary it can't go onto her tfsa she needs to take the 80 000 it's tax-free to her but now she needs to invest it well if she invested 80 000 into a non-registered account let's say at four percent that's thirty two hundred dollars in growth every year so potential dividends capital gains or interest income this could create a tax situation of potentially a few thousand dollars and potentially claw back oas so the big difference whereas if sally was listed as a successor holder not a beneficiary then what would happen if they both had 80 000 his would lump onto hers and she'd essentially have 160 000 of tfsa so there's a huge benefit so make sure when you set up if you have a spouse or commonwealth partner list them as a successor holder not as a beneficiary the second tip and mistake that we see people make all the time is using their tfsa as a savings account okay so when the tax free savings account was launched in 2009 basically all the major banks in canada pushed the tax free savings account as a high interest savings account and it should be the furthest thing from that the tax free savings account should be used as a long-term investment tool much like your rrsp there's the on occasion where we would recommend using your tax your savings account to invest in the high interest savings which right now you know if you go to eq bank you're getting i think they just lowered it to 1.25 so let's say one percent okay um if you're saving maybe short term you have no other use for your tax free savings account then of course you could use a tax re savings but of course you don't pay no tax on one percent on maybe investing five or ten or fifteen thousand dollars you're not saving a whole lot of taxes so make sure that you use your tfsa not as a high interest savings investment tool but as an actual investment tool where you can grow it you know four five six plus percent every single year long term growth so you know again it's been marketed as a tfsa and a high interest savings are the same thing they're different a tfsa is an investment tool um or an investment vehicle whereas a high interest savings that's just one of the investment options much like you know an etf of the stock market or bonds or whatever you want to invest in that doesn't matter but you know don't throw a one percent savings account into a tfsa so that's something we come into quite often so be aware of that it was marketed really badly early on by the major banks and we're trying to reverse that to show people how a tfc can be used like if you're earning tax free money at one percent big deal but if you can earn you know five six percent a year tax-free as that account grows it can be hugely beneficial not just leading up to retirement but in retirement as well the third mistake we see people make is using a tfsa but they still have high interest debt so if you're carrying credit card debt or any debt basically be on your mortgage where you're paying let's say over four or five percent uh in interest start paying down your debt before you start saving in the tfsa okay let's eliminate that debt first there's no point paying 20 interest on a credit card with a ten thousand dollar balance and having you know a ten thousand dollar tfsa account that's earning say five percent that fifteen percent spread is costing you a lot of money fifteen hundred dollars in that scenario so make sure we pay down high interest debt first and then start working towards you know building up and investing in your tax free savings account so the fourth mistake we see people make in their tax-free savings account is contributing and then withdrawing in the same year and then trying to contribute again so you are able to kind of put money in and out of a tax-free savings as long as you don't over contribute your maximum within that calendar year so let's give you an example here so let's say uh january 1st 2021 you've never made a contribution to a tfsa um you were 18 or older in 2009 so you have the full room so 75 500 and you lump that into your tax savings account now fast forward to july and you know you've decided you want to buy a motor home okay and that you know that 75 500 would just sit there you hadn't had time to invest it you pull it out so the full 75 500 you pull out of your tax free savings account to have in your bank account so that when you find that right motor home you can pull the trigger and buy it now fast forward a month and a half later two months later to the end of august early september you know with covid it's hard to find a good motorhome you haven't found one and you decide to um you know sit on it for a year and put the money back into a tfsa well you can't do it you've already maxed out for that year okay so for let's say 2021 you put in that 75 500 in january you pulled it out in july you cannot contribute that money back until january 1st the following year so 2022 okay so if you don't find that perfect motor home that's 75 500 do not put it back into your tax free savings account that will be an over contribution and you will pay one percent penalty per month and on that amount it adds up quick so make sure you don't do that we're going to cover off a video on uh in a couple days on over contributing and the calculations around that but make sure that if you put money in take money out if you're gonna put money back in make sure you have contribution room so let's run through the same scenario but in january you only put in forty thousand dollars so you put forty thousand dollars into your tfsa account fast forward to july you pulled that 40 000 out to buy motor home and by september you couldn't find that more home that you wanted well you can actually put it back in invest back in 35 500 because that brings you up to your 75 500 total annual contribution for the calendar year you did 40 000 in january you can still do 35 500 okay so that's the only way to kind of put money in take money out and put money back in is that if you still have the contribution room so just be aware of that the fifth money mistake that we see people make and this is really a financial planning money mistake and and i've never heard this talked about on youtube or anywhere else before but it comes around tax planning with your tfsa okay as you may know uh just before this video that if you pull money out of a taxi savings account let's say you put the max in you pull it out like we just talked about you can't put it back in until january 1st of the following calendar year so let's take an example let's say you've maxed out your tfsa it's doing well and you know you're going to need some money you know a large chunk of money between january maybe february march april like early first quarter of the following year okay let's say again you've maxed out your tfsa if you wait till let's say february and you pull the money out okay so let's say you've maxed out your tfsa and you need 25 000 out of it and in february you pull that 25 000 out and then fast forward later in the year you come across some money you can't put more money back into your tfsa until the following calendar year because you took it out in that calendar year but if you know that you might need that chunk of money and this happens a lot we do with clients actually quite often is we'll pull that 25 000 out in december because we know they're gonna need that money in the next few months what that does is come february we already have that money sitting in their bank account ready to go because we pre-plan for that and then later let's say july august september they come across a bit of money 10 15 20 000 maybe up to 25 they can now contribute that back into their tfsa because they haven't pulled any money out in that calendar year okay so by pulling it out in say november december before you need it it gives you that contribution room in the following calendar year so hopefully you're following me on this so this is a planning tool a financial planning tool that will run with our clients to give them the cash they need early in the year but also the planning flexibility and the tax planning flexibility later on in the year so if we can put 25 000 back into their tfsa in july and let that grow at five percent you know tax-free essentially that starts to add up substantially for them so that could save them you know hundreds hundreds almost thousands of dollars in taxes saved just by that simple planning tool so that's something again we i've never seen talked about on youtube or anywhere else but if you need money early in a calendar year and you've maxed out or close to max out your tfc consider taking that money out that you need early in the year in november december put it in your bank account to free up that contribution room for the following calendar year so those are the five key money mistakes that we see people make in their tfsa okay so the tfsa is a great tool it's a great long-term investing tool make sure you're using it whether you're younger entering into retirement i'll always preach when you enter retirement having a tfsa funded to some extent is a great tool to have because if you have an emergency or you just need tax free income there's no better way to get it than a tax free savings account but there's many mistakes you can run into along the way we've covered what i think are the five main ones today if you run into another tfsa money mistake leave a comment below we'd love to hear your mistake or if you have questions around can i do this can i do that you know leave a comment below we'll answer that and try and help you out and make sure you don't make the same mistakes that we've seen come into our office so thanks so much for joining us in this video hope you enjoyed it if you do make sure to thumbs up it again it really does help get these videos up to more people and we appreciate you tuning in so thanks so much have a great day

Channel: Parallel Wealth

Views: 496,547

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, Stocks, Bonds, Savings, Passive Income, RRSP, TFSA, Wealth, Parallel Wealth, tfsa mistakes, tfsa investing, tfsa explained, tfsa withdrawal, tfsa day trading

Id: 1UsEgWZV-Vk

Length: 11min 36sec (696 seconds)

Published: Wed May 05 2021