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The ABCs of TFSAs


Here’s what you should know about a key investment account.

Contribution limits
The amount you can contribute to your TFSA has changed twice in the past couple of years. When they were introduced in 2009, you could put up to $5,000 per year into your TFSA. For 2015, that limit was increased to $10,000. But the limit went back down to $5,500 for 2016. 
Even though the limit is lower now, the temporary increase matters, because you can carry forward unused annual contribution room. So if you didn’t hit the $10,000 limit in 2015, you’ll have extra contribution room in future years (including this year).
 
What to invest in, and why
You can hold a range of investments in your TFSA, from mutual funds to stocks and bonds to money market securities and cash. What you invest in will depend on what you’re saving for and how much time you have.
 
If you’re saving for a vacation in the next year, you’ll need access to your money soon, and you’ll likely want to focus on preserving capital (i.e., not losing any money on your investment). You might want to choose cash or money market securities, even though you’ll earn less on your investment.  On the other hand, if you’re using your TFSA to supplement your retirement income in 20+ years, you may want to aim for a higher rate of return. This means taking on more risk and accepting the possibility that your investments may lose value from time to time. In this case, you may want to hold stocks or equity mutual funds in your TFSA.
 
Invest regularly to stay invested
Whatever you invest in, it’s important to stay invested if you want to make the most of your TFSA. One tip for staying invested is the “out of sight, out of mind” approach. Set up a pre-authorized chequing (PAC) plan that lets your bank take a certain amount of money out of your regular bank account each month and put it into your TFSA.
 
You can choose any amount you like. Choose a manageable amount that fits easily into your budget, and you likely won’t miss the money coming out of your account. You’ll also be less likely to skip a contribution as other expenses come up. You’ll be much more likely to miss one large lump-sum payment at the end of the year – and possibly more tempted to spend that money on something else.
 
Please contact our office today to discuss if investing in a TFSA meets your unique needs. 
 


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