Forget financial new year’s resolutions – I like the idea of tidying up your finances before Dec. 31, so you can coast into the new year in good shape. One of the things you should pay attention to in the next six or so weeks is your tax-free savings account. Here are five TFSA moves to make before the end of 2024:
- If you plan a withdrawal, consider doing it now: To avoid any risk of over-contribution penalties, a good rule is to wait until the next calendar to replace money withdrawn from a TFSA. If you make the withdrawal in late 2024, you can put the money back any time you like once the new year begins.
- Max out your contribution for 2024 and map out 2025: The limit for this year is $7,000, and the same applies to next year. Of course, unused room can be exploited at any time. But if you get your money invested now, you have the potential to start earning tax-free gains immediately. A solid move for next year is to figure out how much you can afford to contribute, divide that amount by 26 and then have money electronically transferred to your TFSA investments each payday of 2025.
- Invest, don’t be a market-timer: Stocks surged this year and, with all the uncertainty in the world now, it’s reasonable to wonder about a correction. Sitting in cash may seem appealing, but returns from risk-free parking spots for money are down to between 2 and 3.5 per cent. Further declines can be expected every time the Bank of Canada cuts its overnight rate. If you’re nervous about putting a lump sum into the markets now, try a few monthly or quarterly additions.
- Make sure you picked a successor holder or beneficiary for your TFSA: For spouses, the best choice is often the successor holder. It means your spouse or common-law partner would take over your TFSA on your death tax-free, regardless of how much TFSA room they have.
- Log into the Canada Revenue Agency MyAccount portal and find out how much lifetime TFSA unused contribution room you have: CRA by now should have accurate information on how much you added to your TFSAs up until the end of 2023. Beware using CRA’s numbers early in the year because they may not be up to date.
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Rob’s personal finance reading list
What’s the oldest item you’ve returned to Costco?
The retailer Costco has a pretty generous return policy and people do take advantage. Some of these stories about Costco customers are way out there.
A side hustle is a second job you do to top up your income, and Fiverr is a website that connects people selling their services on a freelance basis to clients. Here’s a thorough look at the pros and cons of using Fiverr as a way to pursue a side hustle.
All about the business of helping people look good in online meetings using platforms like Zoom. Yeah, you save on dry cleaning when you work at home. But looking slobby on Zoom is bad for your brand.
An investing blogger looks at the benefits of companies returning cash to shareholders through dividends. There’s kind of a cult of dividend investing in Canada, and some in the financial community believe it’s overdone. But there’s an undeniable appeal in owning dividend stocks. While you wait for share price gains, you receive quarterly cash payments that are taxed advantageously in non-registered accounts. Lots of people like that.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Ask Rob
Q: Interesting article about TFSAs. But the follow-up question needs to be: When should I withdraw from a TFSA? I will have a $15,000 special withdrawal next spring. Should I take it from my TFSA or invested savings? How do you decide when to withdraw money from a TFSA?
A: Money in a TFSA grows tax-free, so why disturb it if you don’t have to, i.e. you have other savings? It’s worth noting that you can recontribute money withdrawn from a TFSA, but this is best done in the calendar year after the withdrawal to avoid potential issues with over-contributions. Non-registered money is more flexible.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
My Fridge Food is an app that offers recipes based on the food in your fridge.
In the social sphere
Social media: Finally able to save for retirement at age 44: A Reddit discussion.
Listen: Financial planner David O’Leary on his journey into and out of bankruptcy.
Money-Free Zone: The new song Little Glasgow Boy by The Gilhoolys is old school rock and roll, with plenty of hooks. Message to the band: More, please.
More PF from The Globe
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