Money Coaching tip, Jan 29, 2010
Look. There’s no downside and all kinds of upside to the Tax Free Savings Account. Become a saver, already!
Here’s how it works:
1. Set up a Tax Free Savings Account at any Canadian bank you like.
2. Every year, you can put in up to $5000. But $100 is just fine too.
3. Whatever that $5000 earns, you are never taxed on. So you can go conservative and just have a high-interest savings account within your Tax Free Savings Account or you can invest in Stock (*cough* Apple anyone?) and again if that stock doubles, triples, you don’t pay tax on whatever you make.
4. You can withdraw money with 24 hours notice whenever you like, and there is no penalty or tax implications.
5. The following year (or the following or the following til death) you can not only put in another $5000 all over again but you can also put in the same amount you took out earlier (per #4 above).
Personally, I’ve set mine up with ING Direct with a savings account currently paying 3%. Every payday, $50 automatically transfers into it, plus I throw lump sums in throughout the year as I can.
I’m using this as my Emergency Fund.
Some people argue that 3% isn’t much (only $150 a year if I managed to throw in an entire $5000) and that Tax Free Savings Accounts should be used for something like stocks which could do a Whole Lot Better. (The reasoning is What’s The Point of saving taxes on a paltry $150/yr when I could double my money – one can hope – and then all *that* money is tax free). My thinking is that capital gains (in normal English = how much a stock increases in value) and dividends (in normal English = profits at the end of the year and divided up, some of which ends up in my pocket) are taxed the least, so I might as well do that kinda investing somewhere else.
I digress. The point is, for heaven’s sake, get one set up already. Every last Canadian one of you.
Oh and if you use ING like I do (shameless pitch here), quote 14641937S1 and we’ll each get a $25 bonus.