Learn More About Your Canadian TFSA Contribution

I think we'd all agree that if you just put money into any tool and then just let it sit, it's not going to give you the results that you are looking for. So that's true of a TFSA as much as a whole life policy. So we're wanting to make sure that we're growing our money.

Hi. Today we're going to speak about tax free savings account contributions. So I hope you're willing to learn a little more about a product that's available in Canada to each and every one of us. Hi, I'm Dan and I'm here with my colleague Liz. And as I said, we're going to give you a little insight into tax free savings account contributions. Now what is a tax free savings account? Let's just start with that. You are able to put a certain amount, so there's a limit each year on your contribution in into some sort of savings product that aligns with the program for tax free savings account. And at whatever that amount is that you put in, you can enjoy growth tax free. There's a couple things we want you to learn as you go through this. And one of the experiences I've had in life is I put money into silver and through my tax free savings account and my silver value went down over time. So even though you can enjoy a gain, you don't get to enjoy a loss. You don't get to claim that anywhere that's a loss. So it's one of those things, you take the risk wherever you put it and if it goes up, great, you don't have to pay taxes on it. And the other thing I always want you to be aware of, there is the odd exception, so there's the odd foreign except a dividend kind of account that you can get involved in it through your tax free savings account where you would have to pay the foreign dividend attack. But as a rule you can actually make contributions and those things can grow without any tax being incurred. So you're paying it, you're buying it on an after tax dollar and it starts to grow and everything that grows in there is basically tax free. So Liz, what's your experience and what has your experience been around tax free savings accounts and the contributions that we can put into it.

Let's talk a little bit about that. So I'm just going to share my screen. So this is actually Allen, the Ascendant website. So you're welcome to go to Ascendant Financial and you can ca and you can get this information.

The tax free Savings account started in 2009. And each year the government issues, usually towards the end of the year, they let the Canadian public know how much the contribution room will be for the following year. So in 2021, for example, we were able to contribute $6,000. So if you can see here, on what I've listed here, you can see that if you have been contributing every year since 2009, the maximum that you could have put into the account. So just to be clear, this is the amount that you can put in, not necessarily the amount it might have grown to, but the amount that you can put into is 75,005. So that's the current lifetime limit. Very soon the next amount will get released as to what the amount that can be put in for 2022. So things to understand about a tax free savings account is that there is a maximum that you can put in each year. If you exceed that maximum over the amount that you're allowed to contribute, then you may get charged interest until the date in which that over contribution is withdrawn. And it's also important to understand that.

If you say grow the 75,000 to let's say 100,000 and you pull that 100,000 out in a year. So just say you take it out in 2021, you are actually able to put the full 100,000 back in because that's the amount that you've created the room yourself in the account. However, you need to wait until the following calendar year to do that. So if you take money out in one calendar, you need to wait until the following calendar year to put money back in. So that's a really important part of how the tax free savings accounts work in Canada. Dan, do you have anything you want to add to that?

Yeah, no, that's a really good point because I've known people that have had to pay the fees for, you know, putting back contributions before they were entitled to. So be aware, whatever product it is that you're using, make sure you understand what the rules are. Because there's nothing more frustrating than getting, you know, finding something else out after the fact. And it costs you. So yeah, the key thing I like to speak about, this table, it's like one of the things that jumps out to me every time I look at it is, you know, who's in control. And pretty obvious as you look at this, the government controls how much we can put into it. And you know, as you can see, we had those years where the contribution levels went all the way up to 10,000 and then they were pulled back. And so the reason for that is that it's about taxes. And at some point the government wants to limit how much we can put in a vehicle that allows us to grow tax free. And so that's one of the things that happens with the tax free savings account is it's out of our control how much we can put in each year. And it gets determined for us. As Liz said, each year government makes a call on what our contribution limits are going to be for the next year. So a lot of great upsides with tax free savings account. I like the fact that you can have it, you can have that fund somewhere. And as it grows, if it grows, there will not be a tax event after. And that's just a huge advantage of tax free savings account.

And I think something that people often ask us about, Dan too is we talk to people about using high cash value dividend paying insurance. And so people often ask the question, is this something that I can use in combination with my tax free savings account? So how do you answer that question, Dan, for people?

Well, they fit together really well. So you know, there's things that you will get with your, you know, high cash value life insurance policy participating that you're not going to get with tax free savings accounts. Like it is the death benefit for one. Like it's just something to support your family that really can be a huge advantage to one over the other. And you know, I just tell people if you're already in the behavior, if you already have a good behavior of warehousing your money through, whether it's a tax free savings account or putting it into a dividend paying whole life insurance policy, you're in a good position because you've actually overcome one of those human behaviors which is spend everything we make and not put it somewhere where it's going to be able to support us in the future. And the thing that I realized that with tax free savings account, you get the option to pull that out and put it to work. The biggest difference between the two is when you pull it out of your tax free savings account, it stops growing. If it was growing, it stops growing. Until you put it back in, there's going to be no more growth. Whereas with high cash value dividend paying whole life insurance, when you pull it out correctly, use a policy loan, your capital doesn't stop growing and you create this phenomenal compounding effect over time, over a lifetime, that just really, that's where the huge advantages come. One product over the other. They all have their advantages. And.

I like tax free savings accounts for some reasons they give us that ability to put money away and a way that it can grow. But I really like the fact that with dividend paying whole life insurance, when I take my value out of it through a policy loan, that I haven't killed the growth of that fund.

It's important to understand that what is happening with your money, so what is the opportunity to what you can contribute, which is really important, like how much can you grow it? And that to me is one of the big differences between the two. There aren't the same limits that are imposed on the TFSA as there perhaps are on your whole life policies. So just being aware of what your objectives are and what growth you're looking for and then the other one which is really important is understanding about how that growth works. I think we'd all agree that if you just put money into any tool and then just let it sit, it's not going to give you the results that you are looking for. So that's true of a TFSA as much as a whole life policy. So we're wanting to make sure that we're growing our money. And the thing that I really appreciate about these options is that you don't actually have to choose, you can actually do both. So you know, we talk often about it being an and asset and the ability to do both and having someone who can coach you through how to optimize and use these strategies as a really important part of doing that just and getting really sound advice from professionals who understand either tax laws or how to use whole life insurance properly. Really important parts of really using this for your own leverage so that you can create the result that you really want to out of using these strategies.

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