This is a guest blog post by Alireza Fadaie, a passionate father of a young boy and financial planner based out of Vancouver, BC, Canada. Ali’s nickname is the “Financial Sensei.” In this guest blog post, Ali gives some Year-end Tax Tips. Alireza Fadaie, Eng. PFP, CHS is the Financial Sensei. He has been working in the financial industry in greater Vancouver since 2004 and holds professional financial planner and certified health insurance specialist designations. His achievements in martial arts include winning 2 silver medals for Canada in the World Martial Games and winning an award for outstanding contribution to martial arts from the World Karate Union Hall of Fame.
Year-end tax tips by Financial Sensei
By now I am pretty sure you have all heard of Tax Free Savings Account or TFSA. This great plan was introduced in 2009 by government of Canada. Since 2013 you have a $5,500 contribution room per year instead of the $5000 room prior years. So whatever you can contribute up to this limit will be tax sheltered and you can take the money out tax-free. If you have never contributed to this plan, you can carry forward your contribution room. While this plan has been around for a few years, people still think it is just a savings account in which there is no tax on the return. They then do the math and conclude that with the current low interest rates, that it is a pointless plan. However, you can have different types of investment vehicles in this account, such as, stocks, bonds and mutual funds. Envision that your $5000 today grows into $10,000 and you will be able to take it out tax-free and never pay tax on the return. This great tool should be integrated into your financial plan to make sure you can fully take advantage of its benefits.
Now not many people know that if you take money out of your TFSA this year, the available room will be carried forward to next year. Don’t make the mistake of putting money in and out of your TFSA then. But if you need to take money out of it, just do it before the end of the year if possible so just after the New Year you would have the extra room available. For example if you take out $5000 out of your TFSA, right after new year you would have $5000 to be added to your contribution room as a carry forward from last year. Try to avoid using TFSA as an emergency fund or short term saving and take advantage of it for the long term saving and investment.
Alireza Fadaie, Financial Sensei www.financialsensei.com