How to avoid these 4 common TFSA mistakes (2024)

FAQs

What are the 5 mistakes you must avoid in a TFSA? ›

A key strategy is to contribute early, so your investments have more time to grow. Make sure you're consistently contributing to your TFSA by enabling automated deposits into your account. This will keep your TFSA growing in a tax-free environment. Remember to ensure that you stay within your contribution room.

The most common TFSA mistake

If cash makes up the majority of the money you have in your TFSA, you aren't doing it right. But don't worry! You're not alone in making this mistake. Despite its name, a TFSA is not meant to function as a traditional savings account.

Best ETF for TFSA

If you are looking to invest your ETF into a TFSA, one of the best options for that is iShares S&P/TSX Capped Info Tech ETF (TSE: XIT). This is because a TFSA is tax-free, giving investors more of an incentive to go with a more aggressive investment.

Holding a volatile investment in a TFSA can be risky for a couple of reasons: First, if a capital loss is realized, that loss cannot be used to reduce other taxable capital gains you may have. Second, only the amount withdrawn can be added back to TFSA contribution limit the following year.

That means the TFSA best investments include cash, mutual funds, publicly traded stocks, GICs and bonds. As mentioned, contributions are not tax deductible, as they are with an RRSP. However, withdrawals from a TFSA are not taxed.

One of the major advantages of a TFSA is that you can make withdrawals as you see fit, with no penalty. You are also free to reinvest those withdrawals in a later year. All eligible investors are restricted to the same annual contribution amount: it is not determined by your income.

No Income-Tax Reduction:

Unfortunately, TFSA contributions can't be used to lower your taxable income. This means there is no way to decrease your income tax when contributing to a TFSA. For high income earners this makes an RRSP more appealing.

Why am I losing money in my TFSA? ›

Yes, you can lose money on a TFSA, but it is easy to avoid losing your money. Typically, people who lose their money on a Tax-Free Savings Account are people who are using it for more volatile investments or people who are over-contributing.

It's essential to buy high-quality dividend stocks for your TFSA. When it comes to investing your hard-earned money for the long run and taking advantage of the power of compounding, two of the most important factors are the time you give your money to grow and the amount of money you have invested.

One financial planner calls the first four months of the year a “danger zone” for making deposits to tax-free savings accounts. During this period, Canada Revenue Agency info that shows TFSA contribution room for the current calendar year can be based on incomplete information.

A Tax-Free Savings Account (TFSA) is a registered tax-advantaged savings account that can help you earn money, tax-free. You can think of a TFSA like a basket, where you can hold qualified investments, that may generate interest, capital gains, and dividends, tax-free.

Keep the following points in mind: Avoid Over-Contributing: Over-contributions to TFSAs are subject to a 1% penalty tax per month. If you over-contribute, withdraw the excess amount right away. Do Not Withdraw: While TFSA withdrawals are tax-free, it's important to only withdraw when necessary or for emergencies.

Yes, you can lose money on a TFSA, but it is easy to avoid losing your money. Typically, people who lose their money on a Tax-Free Savings Account are people who are using it for more volatile investments or people who are over-contributing.

The holder of a TFSA cannot carry on a business in his or her TFSA (e.g. a business actively trading securities or running a marijuana store) without facing adverse tax consequences. TFSAs are not allowed to own certain "non-qualified" or "prohibited" investments.