TFSA Contribution 2018

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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Mordko
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Re: TFSA Contribution 2018

Post by Mordko »

AltaRed wrote: 13 Dec 2017 09:59
Remember Feb 22,1994 when the lifetime cap gains exemption was frozen (taken away) to service the debt? The TFSA is sort of an equivalent 'back door' way of resurrecting that 'space' over time, and it too will be affected in some upcoming tax revenue crisis given the recklessness of our spendthrift politicians.

I am under no illusions about history repeating itself.
I don't remember because I wasn't here but there is an infinite number of different tax hikes which the Liberals might introduce over the next 5 years and this is just one of them. It would hurt exclusively the older people who tend to vote. That was the reason British Labour didn't dare to impose limits on ISA.

Anyway, let's compare notes in 5 years to resolve this.
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Re: TFSA Contribution 2018

Post by kcowan »

adrian2 wrote: 13 Dec 2017 16:44
kcowan wrote: 13 Dec 2017 15:22 While we are wildly speculating, why not have the TFSA replace the RRSP? I could see an optional increase in TSFA limits based on foregoing RRSP room as an evolutionary step.
I've answered the same question from you in the past: the RRSP system is well integrated with the pension plans, resulting in relative fairness for people with or without a pension at work.

It would be grossly unfair to offer the same (RRSP/TFSA/combined) room to civil servants who are very well provided in terms of pensions, and to people without any pensions.
OK Adrian. I admit that I have no interest in the impact on civil servants. Do you think my idea could be modified to prevent a further inequity?
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Re: TFSA Contribution 2018

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kcowan wrote: 14 Dec 2017 05:27 OK Adrian. I admit that I have no interest in the impact on civil servants. Do you think my idea could be modified to prevent a further inequity?
Sorry, no can't do. What's so bad with the current system?

If we start, as a given, that DB/DC pensions are here to stay in the existing format, the RRSP's should stay in the current format, too.
Read "The Pension Puzzle" from Bruce for more details (I very much enjoyed the book when I read it more than a year ago).
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Re: TFSA Contribution 2018

Post by kcowan »

Well it seems that young people are opting out of the RRSP in favour of the TFSA. My idea was to encourage them back once their TFSA room is used up?
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Re: TFSA Contribution 2018

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I've never understood why the "Fairness" warriors haven't gone after RRSPs as well. After all, they benefit those darned "rich" people right ?

I mean, 18% of earned income up to a maximum of $26,010 implies that someone is making circa 145K a year. Is it "FAIR" that they get to put so much away for retirement ? :wink:
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Re: TFSA Contribution 2018

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Koogie wrote: 14 Dec 2017 16:55 I've never understood why the "Fairness" warriors haven't gone after RRSPs as well. After all, they benefit those darned "rich" people right ?

I mean, 18% of earned income up to a maximum of $26,010 implies that someone is making circa 145K a year. Is it "FAIR" that they get to put so much away for retirement ? :wink:
I honestly think it's because people see the RRSP as being taxed on withdrawal, whereas with a TFSA there is no tax on withdrawal.

I don't think many people make the connection that you are getting taxed either which way RRSP or TFSA, but the perception of money withdrawn being taxed makes it appear more fair.

Basically, most people are too daft to figure out that it doesn't matter if it's before-tax income that gets taxed on the way out or after-tax income that's been taxed on the way in - the government has gotten its pound of flesh either way.
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Re: TFSA Contribution 2018

Post by brucecohen »

Koogie wrote: 14 Dec 2017 16:55 Is it "FAIR" that they get to put so much away for retirement ? :wink:
Yes, because the RRSP limits are tied directly to funding limits for DB pension plans. (Actually, DB rules are still more generous but the 1990 RRSP-pension reform did close much of what was an incredibly large gap.)
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Re: TFSA Contribution 2018

Post by Koogie »

I do realize that the RRSP funding formula is fair (more or less) but was alluding more towards what SkaSka said. Remember, most of the electorate is innumerate and encouraged to be jealous of those that save and invest.

After all, half of Canadians believe aliens have visited us and half also believe in ghosts (not sure if it is the same half.. lol) You can sell people anything, including class warfare. :wink:
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Re: TFSA Contribution 2018

Post by ockham »

Koogie wrote: 15 Dec 2017 09:46 I do realize that the RRSP funding formula is fair (more or less) but was alluding more towards what SkaSka said. Remember, most of the electorate is innumerate and encouraged to be jealous of those that save and invest.

After all, half of Canadians believe aliens have visited us and half also believe in ghosts (not sure if it is the same half.. lol) You can sell people anything, including class warfare. :wink:
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Re: TFSA Contribution 2018

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Don’t forget also that inheritances will double or triple the size of TFSAs in an increasing number of cases going forward as TFSA holders die and their tax-free assets are transferred into the TFSAs of designated beneficiaries.
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Re: TFSA Contribution 2018

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Which brings me to my question.

My TFSA has recently doubled in size to $135k after the passing of a loved one. I was the beneficiary.
Their TFSA assets were first liquidated to cash so the additional $68k in my TFSA is currently in cash.
Is there any restriction or change on the usual rules of withdrawals, recontributions and penalties in such cases of recent beneficial transfers?

Example:
I have $40k in stocks in a non-registered account with modest unrealized cap gains that I don’t mind crystallizing.
Can I withdraw $40k cash from my TFSA now (before year end) then contribute in kind the 40k in stocks in January, in addition to my regular 5500 contribution?

I assume I am free to use the enlarged TFSA contents now as if I had built it myself. But my TD branch rep was unsure and recommended I ask CRA. Which I attempted but failed to connect. (My fault not CRA’s, they tried to call me.)

Edit: the rationale is I’d like to buy a preferred shares etf with some of the new cash and figure that would best be done in the non-reg account if the above swap can be engineered.
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Re: TFSA Contribution 2018

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northbynorthwest wrote: 19 Dec 2017 08:25 Don’t forget also that inheritances will double or triple the size of TFSAs in an increasing number of cases going forward as TFSA holders die and their tax-free assets are transferred into the TFSAs of designated beneficiaries.
Not the case for all beneficiaries. Rollover is relevant primarily for Successor Holder
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Re: TFSA Contribution 2018

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qasimodo wrote: 19 Dec 2017 09:40
northbynorthwest wrote: 19 Dec 2017 08:25 Don’t forget also that inheritances will double or triple the size of TFSAs in an increasing number of cases going forward as TFSA holders die and their tax-free assets are transferred into the TFSAs of designated beneficiaries.
Not the case for all beneficiaries. Rollover is relevant primarily for Successor Holder
i.e., the spouse.
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Re: TFSA Contribution 2018

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northbynorthwest wrote: 19 Dec 2017 08:57 My TFSA has recently doubled in size to $135k after the passing of a loved one. I was the beneficiary.
Their TFSA assets were first liquidated to cash so the additional $68k in my TFSA is currently in cash.
Unless the loved one was your spouse, Houston, you have a problem.
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Re: TFSA Contribution 2018

Post by northbynorthwest »

Yes, I was referring to my late wife. My attempt to be less specific clearly backfired.
Thanks for the correction on the successor vs beneficiaries distinction.
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Re: TFSA Contribution 2018

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AltaRed wrote: 13 Dec 2017 09:59
The Liberals especially are most likely to cap lifetime contribution room at some point because ideologically they do not want the 'rich' to have access to perhaps $1 million (to use a number) of tax free wealth creation capability that could then multiply itself many times over in a lifetime. The middle class will never be able to fully fund 6 or 7 digits of contribution room and that will be one of the trigger points as well. The Feds will be too desperate for tax revenue at some point to service the debt to leave that golden egg alone.

Remember Feb 22,1994 when the lifetime cap gains exemption was frozen (taken away) to service the debt? The TFSA is sort of an equivalent 'back door' way of resurrecting that 'space' over time, and it too will be affected in some upcoming tax revenue crisis given the recklessness of our spendthrift politicians.

I am under no illusions about history repeating itself.
Yea, like Morneau who introduces legislation where he earns millions from his stock holdings.
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Re: TFSA Contribution 2018

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SkaSka wrote: 15 Dec 2017 01:28 Basically, most people are too daft to figure out that it doesn't matter if it's before-tax income that gets taxed on the way out or after-tax income that's been taxed on the way in - the government has gotten its pound of flesh either way.
Probably not the same amount of flesh though: depends on your expected tax rates in and out and your expected growth.

Let's say 40% tax rate in and out with 10 years of 7% compounded growth.
100K would become 197K.
You would pay 79K in tax going out with RRSP.
But you would have only paid 67K in tax going in with TFSA.
TFSA wins by 12K in this example.
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Re: TFSA Contribution 2018

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Descartes wrote: 21 Dec 2017 13:28
SkaSka wrote: 15 Dec 2017 01:28 Basically, most people are too daft to figure out that it doesn't matter if it's before-tax income that gets taxed on the way out or after-tax income that's been taxed on the way in - the government has gotten its pound of flesh either way.
Probably not the same amount of flesh though: depends on your expected tax rates in and out and your expected growth.

Let's say 40% tax rate in and out with 10 years of 7% compounded growth.
100K would become 197K.
You would pay 79K in tax going out with RRSP.
But you would have only paid 67K in tax going in with TFSA.
TFSA wins by 12K in this example.
The growth rate does not matter in a proper calculation.

In your example, you should compare $100k in an RRSP with $60k in a TFSA (after tax amount).
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Re: TFSA Contribution 2018

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adrian2 wrote: 21 Dec 2017 13:54 The growth rate does not matter in a proper calculation.

In your example, you should compare $100k in an RRSP with $60k in a TFSA (after tax amount).
Ok.. not sure why. But your certainty tires me ..and reminds me why I tend to stay away from this place now.
Or as you will read it: You win :).
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Re: TFSA Contribution 2018

Post by adrian2 »

Descartes wrote: 21 Dec 2017 14:07
adrian2 wrote: 21 Dec 2017 13:54 The growth rate does not matter in a proper calculation.

In your example, you should compare $100k in an RRSP with $60k in a TFSA (after tax amount).
Ok.. not sure why. But your certainty tires me ..and reminds me why I tend to stay away from this place now.
Or as you will read it: You win :).
That was completely uncalled for. :evil:

http://www.finiki.org/wiki/TFSAs_versus ... ntribution concludes with: "The after-tax values are identical."
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Re: TFSA Contribution 2018

Post by deaddog »

adrian2 wrote: 21 Dec 2017 15:03
http://www.finiki.org/wiki/TFSAs_versus ... ntribution concludes with: "The after-tax values are identical."
The only difference might be any clwbacks the RRSP income might incurr.
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Re: TFSA Contribution 2018

Post by qasimodo »

deaddog wrote: 21 Dec 2017 15:19
adrian2 wrote: 21 Dec 2017 15:03
http://www.finiki.org/wiki/TFSAs_versus ... ntribution concludes with: "The after-tax values are identical."
The only difference might be any clwbacks the RRSP income might incurr.
While the example assumed 40% tax rate on RSP (RIF) withdrawal, a fairly common scenario would likely be: 40% tax on annual withdrawal and max rate (50%+) of lump sum on death of surviving spouse
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Re: TFSA Contribution 2018

Post by longinvest »

In order to get into OAS clawback territory, one has to accumulate significantly more than $75,000 in taxable income after age 70.

I'm having a really hard time trying to figure out a typical entire-financial-life scenario where:
  1. The investor wouldn't benefit from a lower tax rate on RRIF withdrawals versus the avoided marginal tax rate on RRSP contributions.
  2. The investor would get to choose between RRSP and TFSA contributions, instead of fully contributing to both to avoid non-registered investments which would be a worse option for excess savings.
I mean that this person had to have a high salary and to be a good saver. It's not the typical worker with a $45,000 salary who'll end up with double his work-time salary as taxable retirement income (in addition to tax-free TFSA withdrawals, tax-free return of capital, and the tax-exempted half of capital gains in non-registered accounts).

Can someone enlighten me?
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Re: TFSA Contribution 2018

Post by qasimodo »

longinvest wrote: 21 Dec 2017 16:36
[*] The investor wouldn't benefit from a lower tax rate on RRIF withdrawals versus the avoided marginal tax rate on RRSP contributions.
One scenario: rollover of RIF balance to a surviving spouse's RIF and leading to taxation at a higher bracket
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Re: TFSA Contribution 2018

Post by longinvest »

qasimodo wrote: 21 Dec 2017 16:53
longinvest wrote: 21 Dec 2017 16:36
[*] The investor wouldn't benefit from a lower tax rate on RRIF withdrawals versus the avoided marginal tax rate on RRSP contributions.
One scenario: rollover of RIF balance to a surviving spouse's RIF and leading to taxation at a higher bracket
In case of non-registered investments, wouldn't the estate have to pay lots of taxes on realized capital gains at death at an even worse tax rate before giving the money to the surviving spouse?

The RRIF money continues to enjoy tax-free growth after the death of the first spouse.

I'm still seeking enlightenment.
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