January 5th, 2009 by Potato

The Tax-Free Savings Account is now live. For those not keeping up, it’s the new complement to the RRSP and the only good thing “Canada’s New Government” has given us. You can contribute money to it ($5000 per year) to grow tax-free until you feel like taking it out. While the banks might charge a fee to withdraw, there’s no tax penalty (unlike an RRSP), and you can recontribute any withdrawls in later years so you don’t lose the tax shelter space (again, unlike RRSPs) so it’s a great account not only for retirement, but also for medium/long-term savings goals — no longer will the interest on that car down payment get taxed for the 3+ years you’re saving up while you drive your current one into the ground!

I filled my $5000 up this morning. For myself, I went with a brokerage TFSA at TD Waterhouse so I could hold stocks/mutual funds in it. If you’re going to hold cash/bonds for the long term, it makes sense to shelter those in the TFSA, but at the moment I’m nearly fully invested in equities/income trusts. I was planning on putting my holdings of Fort Chicago (FCE.UN) in there, in part because part of that distribution is interest income (which should be sheltered), but Yellow Pages (YLO.UN) was down to $7.11 this morning (and closed down at $7.02), which meant I could fit an even 700 units in there (vs the 687 of Fort Chicago) which just seemed neater and cleaner to my mind, so I did that even though it might not have been the most tax-efficient thing I could have thrown in there.

Wayfare, if all went according to plan, should have also contributed to her TFSA today, holding cash in a high-interest savings account at PC Financial to represent our need for cash savings.

I was talking to Netbug about the TFSA over the holidays, so hopefully he remembered on his own to contribute to the one he was going to set up (also at PC Financial). If not, consider this your reminder!

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