January is a great month for Canadian investors because it allow us to make a new contribution to our TFSA accounts. Investments made inside a TFSA are FREE OF TAXES. Which mean that the capital gain AND dividend earn inside a TFSA account are not tax, and will never be. For 2017, the TFSA contribution limit is of $5 500. Knowing how much I am pack of stocks inside my non-registered portfolio, no need to have new cash available to invest in my TFSA.
What I like to do from time to time is call contribution in kind to my TFSA. A contribution in kind is when you take an investment from a non-registered account and transfer it to the TFSA. While doing so, when a stock is involved, the broker will ask if you want to invest at the lowest or highest value of the day. I never totally understand that question because at the end of the day, the stock price is fix. Anyway, proceeding with a contribution in kind is the easiest way to contribute to the TFSA when no fresh cash is available.
While doing a contribution in kind, there's a couple of things you need to watch out. The following is basically the TFSA contribution in kind "bible", so please enjoy and read carefully.
-Before proceeding with any contribution in kind, make sure you have contribution room left. If you exceed the amount you have left in contribution room for the TFSA, you'll pay very hard for your mistake. Its going to cost you money. You'll be very badly penalize, and you don't want that to happen because you are too sexy smart for that!
-If, inside the non-registered portfolio, if you have a margin account, you need to watch out carefully the loan value of the investment you think about switching over to the TFSA before doing the famous move. Because once the move is completed, your loan value left on the margin will drop. Personally, I try to only pick non-registered stock that have a low loan value.
-I like to pick non-registered stocks that are dividend payers.
-While proceeding with the contribution in kind over the phone with your broker to the curious question lower or highest level, I suggest to always ask for the lower value, that way, you'll have more room left to make even more investment inside the TFSA!!!
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4 comments:
A nice thing about in kind moves, at least with TD, is that there is no charge to do this. One comment though: US stocks in a
TFSA will have a withholding tax when dividends are paid, but not if the stock is in a RRSP. The reason I guess is that Americans have 401ks which are similar to RRSPs, so they recognize this as a tax free investment and don't withhold taxes for Canadian RRSPs. They don't have anything like a TFSA, so any dividends paid in a TFSA are subject to withholding tax. Long story short, its better to hold US stocks in a RRSP than in a TFSA.
Good to know.
Also, you do have to pay capital gains, if you have them, on the stocks you are transferring in, if you have a capital loss you cannot claim it.
Better to have non-dividend Canadian stocks in TSFA, RRSP because you don't get the benefit of the Canadian Dividend Tax Credit in those accounts. Better to put stocks that you hope will have higher stock price appreciation (ie capital gains) in TSFA because you pay no capital gains on them.
Not critical to follow those rules but something to look at when tax planning.
Cheers you sexy investing goddess!
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