That $5000 Bank Thing

Well this was kind of funny. I was talking to a person today about a tax free savings account and at first he had no idea what it was. I started explaining a bit about how it is kind of like an RRSP that worked a little differently as you can earn interest and not be taxed for it.

Immediately, he then responds by saying “Oh, you mean that $5,000 a year thing”. Kind of interesting I thought as it made me wonder how many people actually think that a TFSA is an RRSP. Maybe that commercial didn’t get through to a lot of people in the way that it intended.

Based from my experience though, not many average people are really taking advantage of a TFSA from what I noticed. With responses like the above, the information about it isn’t really penetrating enough I seems.

One response to “That $5000 Bank Thing”

  1. Mackay: Please keep in mind that I am not a pension plan eprext but I will try to give you some general comments.1. Pension plans do give you limited options. Check to see if they have made any changes to their selections since you first participated. Unfortunately, you can’t move the funds unless you quit your job and transfer the pension to a Locked in account.2.By all means go to the pension seminar. They will give you more detailed information than I could attempt here.3.Enroll with to see what your projected CPP benefits will be. Then calculate your pension amounts for various ages. Remember to include any RRSP withdrawals a rule of thumb is 4% annually. You want to see what your monthly income will be.4.RRSP vs TFSA. There’s no point in contributing to a RRSP now to get the tax deduction if you will have to pay more tax on it on withdrawal. That’s why you need to calculate your retirement income. Personally (and this is just me) I would first maximize the TFSA contributions as those withdrawals will be tax free.5. Investments are a personal decision depending on whether you still have time to go for growth or if you will need some income (and tolerance for any risk). Index funds are a good low cost option. Remember if you buy growth funds in your RRSP you will have to eventually withdraw the funds. You don’t want to end up losing money if the market takes a downturn.6. I would try to pay off the mortgage before your retire. Even with a low interest rate you are still making payments. Wouldn’t you rather have the $500-$1000/month for fun?

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