Favourites - OpenRoad Driver

My FaVOURITE
Thing...Tax Free
If you were to use the tfsa for long-term savings, that difference
would be magnified because you would be able to invest in
something that would generate a greater rate of return for a longer
period of time. This is where a tfsa would be used to supply
cash flow needs in retirement. let’s say you only contributed
$200 per month to a tfsa for twenty years. Based on a moderate
rate of return of 5.5% the tax savings would be a whopping
$11,045 compared to a non-registered account as shown in the
chart below.
TFSA vs. Unregistered Savings
$28,480
$48,000
Taxable Savings
Notes: Combined federal and provincial tax savings based
on a $200 monthly contribution for 20 years and a 5.5% rate
of return. For unregistered savings, a 21% average tax rate
on investment income is assumed (based on 40% interest,
30% dividends and 30% capital gains, and a middle-income
earning account holder).
OpenRoad driver |
Tax Savings
$11,045 }
$39,525
$48,000
TFSA
Investment
Income
Contributions
you will be able to contribute up to
$5,000 per year to a TFSA and then
watch it grow without paying tax
throughout your lifetime.
a recent survey by harris/decima research in which 2,500
Canadians were polled nationwide reveals 50% will open a tfsa
in 2009. 81% of respondents with over one million dollars in
assets intend to maximize their contributions. The survey also
revealed that 45% of Canadians are not yet aware of the plan.
Will the tfsa replace the need for an rrsP? In some cases it
will. Generally, if you expect your marginal tax rate to decrease
in retirement, your focus should be on accumulating money
inside the rrsP. however, if your taxable income will be the
same or higher in retirement, the tfsa would be the best choice.
however, it is important to consult with a professional to consider
these outcomes as a part of a complete financial plan.
so if the tax man tries to bite, simply remember the tfsa as
one of your favourite things, and then you won’t feel so bad.
‡ Al Nagy, CFP®, is a former hockey
broadcaster who traded in his microphone
for a financial calculator twelve years
ago. A professional financial consultant
with Investors Group, who has earned the
Certified Financial Planner® designation, Al
is a skilled public speaker who helps people
who are preparing for retirement. He can be reached at:
al.nagy@investorsgroup.com