TFSAs - make sure you use them

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TFSAs

I have been living in Canada since 2011. Tax Free Savings Accounts (TFSAs) have been around since 2009. When I came to Canada I knew of the existence of TFSAs but as money was tight in those first few years I couldn't take advantage of them and I didn't even research how they worked.

As time passed and my income situation settled, I opened up a cash savings TFSA and started putting spare cash into it. I even maxed out my annual contribution one year.

This was better than nothing but I wasn't maximizing the tax advantages that TFSAs give. 

For one, I was only using cash savings TFSAs. The interest rate of these in the last few years has been less than 1%, which is less than the rate of inflation. So in effect, the spending power of the money in the account was declining over time.

Secondly, I didn't realise that I had unused contribution room. I had only deposited the maximum annual amount once and didn't know that you don't "lose" the unused room. Rather it accumulates and you can log into to your CRA account and see, very easily, how much contribution room you have.

So, what can you take away from this?

  • Make sure you know how much contribution room you have.
  • Choose the appropriate investment vehicle for your TFSA. 
As I will write in future posts, I have started with dividend investing and I use my TFSAs to do this.

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