TFSA Do’s and Don’ts
Here’s a quick rundown on what you should and shouldn’t do with your TFSA:
- DO open up a TFSA. It’s open to all Canadians 18 and over with a valid SIN.
- DO your research before opening up a TFSA. As a better-educated investor, you can offer informed ideas on how you want your TFSA to operate, whether you have a bank handling the details or you are self-investing.
- DO contribute on a regular basis. If you get in the habit of contributing regularly it will become second-nature.
- If you do withdraw money from your TFSA and want to eventually put it back in, DO re-contribute it the next calendar year. This way you will ensure you don’t over-contribute.
- DO diversify. A diverse portfolio is liable to grow its overall value over the long term. Mix up your portfolio with stocks, mutual funds, bonds, and GICs. Make sure it contains some US and international holdings.
- DO designate a successor holder AND a beneficiary. This way when you die, your TFSA portfolio will pass on to this person tax-free.
- DON’T make your TFSA 100% cash. A TFSA is not a savings account, so don’t treat it as one!
- DON’T concentrate all your investments in one sector of the market. Make sure to diversify so downturns in some sectors will affect your overall portfolio less.
- DON’T over contribute. Keep track of your contributions and withdrawals so you don’t get hit with CRA taxes and penalties. You are currently allowed to contribute $6000 per year.
- DON’T concentrate all your investments on those that give interest of less than inflation (currently sitting at just over 2%). Make sure to have some better-performing holdings as well. Otherwise you’ll be losing money in the long-term!
- DON’T intentionally over-contribute to a TFSA, thinking the extra gains will offset the penalty tax. The CRA considers this an advantage and will penalize you even more.