I am the first to admit that financial planning isn't one of my strong points, although I am pretty good with the basics. Like growing my savings with regular, automatic deductions so I don't miss the cash and don't have the opportunity to decide to skip a month. And I've been contributing what I can into an RRSP for a number of years now. To be honest, I don't often find myself with extra cash needing a safe and profitable home. Not generally, but once a year at tax time we usually do end up with a little windfall, thanks to our refunds. So what do we do with that money to get the biggest financial impact?
An excellent option is to pop that money into a Tax-Free Savings Account, or TFSA, and you won't be subject to income tax on the earnings you bring in. Sounds good to me!
I opened my first TFSA last year, because I had a chunk of money needing a home after I left my old job and withdrew my pension. Most of my pension savings were able to go into an RRSP, but there was a remainder (over the government caps that I don't understand) that I received as taxable income. My banker recommended the TFSA as a great spot to put this remainder, both for the reasons above, and because I'd be able to easily access the money if I needed it for home repairs, medical expenses, a vacation, or whatever. That appealed to me, as I didn't want to tie up my money in other types of investments where I couldn't get at it in a pinch. At the moment, I'm mostly concerned with having a little emergency fund set aside for unforeseen expenses, and a straight up TFSA worked great for that.
Plus, if there's a way I can legitimately earn money (interest on savings) without paying taxes on it? Why would I pass that up? I'm earning more in the long run, because I get to keep all of the earnings. In a traditional savings account, or GIC, or other investment, part of the earnings would go back to the government in income tax. Heck no.
So, how do you set one up? Talk to your advisor. TD has specialists who will help you find the right TFSA solution to fit your situation and needs. Financial planning isn't one-size fits all, so it's important to go to the experts, who can show you options on the various types of TFSAs available. TD even has a 3-Year Security GIC Plus that can earn you up to 8.88%! If your goals are more long-term, that is a great potential return.
Short-term, long-term, high risk, low risk, or somewhere in between, they'll have a product that's right for you. You can find out more by visiting them at www.tdcanadatrust.com where they provide information on the various TFSAs available, FAQs, what a TFSA is, and how a TFSA is different from an RSP.
TFSA vs. RSP? Both have their place, and both have their benefits and restrictions. For me, aside from the contribution caps, and tax deductions on the RSP contributions, the biggest difference is the TFSA gives you options for easy and non-taxable access to your money if you need it, whereas the RSP is more restricted and meant to be left for the long-term—you will pay tax on any withdrawals to make up for the tax break you received when you contributed.
Now, go gather up your documents, receipts, T4s, and everything else, and get to work on your tax return. (Or get your accountant or a service on it, whatever works for you.) It's not a task I love, but it's necessary, and with some careful digging to make sure you're not missing any deductions, you will hopefully have a nice refund coming your way. And now you have a great option for what to do with it—make it earn even more in a TFSA!