BMO's Year End Tips For Getting The Most From Your TFSA

Celebrating the one-year anniversary for TFSAs

TORONTO , Dec. 3 /CNW/ - The end of the year is an ideal time for Canadians to review their financial portfolio in order to ensure they are getting the most from their investments.

Increasingly, Tax Free Savings Accounts (TFSAs) are playing a central role in the investment mix of individuals. Why? TFSAs provide another way for people to save in a tax efficient manner - and with the option to access funds readily and without a tax penalty.

However, are Canadians getting the most out of their TFSAs?

"While there are numerous advantages to opening a TFSA, we're finding that the majority of people remain unclear about the options available to them on how to invest the funds in their accounts and how TFSAs fit into their overall financial strategy," according to Tina Di Vito, Director, Retirement Strategies, BMO Financial Group.

In order to maximize their TFSAs, she recommends that Canadians consider the following:

Know How A TFSA Fits Into Your Overall Financial Picture

In general, TFSAs are solid investment options. However, opening a TFSA and/or contributing the maximum annually may not always be the right thing to do. For example, amounts owing on credit cards, making RRSP contributions, and/or paying down your mortgage might all play a role in how much you put into a TFSA - or if you open an account at all. It is always a good idea to discuss your overall situation with a financial advisor before adopting an investment strategy.

Understand How Your Investment Income Is Taxed

Interest is taxed at a higher rate than dividends and capital gains. Since any growth on your initial investment in a TFSA is tax-free, it may be more advantageous to use your TFSA for interest-earning investments. Moreover, capital losses incurred in a TFSA are not tax deductible - this is important if you want to use your TFSA for speculative investments and stocks.

Maximize Your Contributions And Take Advantage Of The Compounding Effect

Take advantage of tax-free compounding interest by making sure you contribute the maximum amount to your TFSA every year as early in the year as possible.

Married Or Common-in-Law? Make Sure You Each Open A TFSA

Although you cannot contribute directly to your spouse's or common-in-law partner's TFSA as you can with a spousal RSP, you can give your spouse or partner money that they can then put into their own TFSA. Any income earned on those TFSA assets will not be attributed back to you.

TFSAs Are A Great Option If You Qualify For Government Benefits

Income generated in a TFSA does not impact government benefits. Therefore, it may be an excellent choice for retired Canadians and low-income households who are trying to save. Opening a TFSA will allow you to generate investment income and remain eligible for government income-based benefits.

For further information: or to arrange an interview, contact: Kasia Lech, Toronto, [email protected], [phone]; Ron Monet, Montreal, [email protected], [phone]; Laurie Grant, Vancouver, [email protected], [phone]