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Monday, March 13, 2023

Maximizing my TFSA Portfolio: How I Contribute In-Kind When I Just Don't Have Any Cash to Invest

I really like the change of springtime because even though I finish work at 6 p.m. New Brunswick time, I can still go out for a walk without it being too late. I usually walk for nearly an hour during my lunch hour, and now I will start going out for a walk after work too. If I can walk enough to reach 12,000 steps, it's a good day for me.

On the other hand, today wasn't a good day for the TSX as it closed the session with 19,588.90 points, falling behind the 20,000-point mark. My non-registered portfolio closed today's session at $143,958.26, my US portfolio at $5,151.27 US, my RRSP stocks-only portfolio at $64,310.49, and my TFSA portfolio at $124,572.51.

It's time to discuss today's topic: how to contribute to your TFSA portfolio, even if you don't have any money to invest. The solution is simple: make a contribution in kind from your non-registered portfolio to your TFSA portfolio. Personally, I consider myself to be an expert in contribution in-kind. I regularly use this method to contribute to my TFSA portfolio, which is why I have a much larger number of investments in my TFSA portfolio compared to my non-registered portfolio.

If you take a closer look at my investment portfolio, you will see that I have more holdings in my TFSA portfolio because of the contribution in-kind system. This allows me to maximize the growth potential of my investments without having to make additional cash contributions.

The concept of a contribution in-kind is quite simple. You choose an investment from your non-registered portfolio and transfer some or all of its shares to your TFSA portfolio. This method allows you to fully utilize your TFSA portfolio without having to use cash from your savings. When it comes to making contributions in-kind from my non-registered portfolio to my TFSA, I follow a few important rules.

First, the investment that I select from my non-registered portfolio needs to be a stock that I care about and that I am willing to keep as an investment for my TFSA portfolio. 

Secondly, the value of the investment that I will select from my non-registered portfolio needs to be down. While proceeding to a contribution in-kind using investments that are being held inside your non-registered portfolio, you will have to pay taxes on the transfer. If the investment selected is experiencing great growth inside your non-registered portfolio, if you transfer that successful investment to your TFSA portfolio, you'll have to pay capital gain taxes. Personally, it's something I am trying to avoid. In addition, selecting quality investments that have decreased in value in your non-registered portfolio can provide you with more contribution room in your TFSA.

Currently, my investment in BCE Inc. (BCE) within my non-registered portfolio has decreased by about $400, making it an ideal choice for a contribution in-kind to my TFSA. Additionally, I already have some BCE shares in my TFSA portfolio, so consolidating all of my BCE shares in my TFSA would help to maximize the dividend income and enable the DRIP to work effectively.

Contributing in-kind with dividend-paying stocks is an excellent strategy because, once the transfer is completed, the dividend income earned within the TFSA portfolio is essentially tax-free, which is fantastic. Last year, I earned over 80k, and while I probably may not earn as much in 2023, I'll do whatever I can to save money and keep it away from the tax man.

When transferring funds or making a contribution in-kind to grow your TFSA portfolio, it's crucial to ensure that you stay within your contribution limit. Overcontributing to your TFSA portfolio could result in significant costs. Personally, I have not yet maximized my TFSA contribution and have several thousand dollars of contribution room available for my use.

Recently, I invested a significant amount of money into my margin account to pay off some debt. The debt is linked to my non-registered portfolio. Whenever I make a contribution in-kind, I must ensure that I replace the loan value of the selected investment with cash. However, as I have been diligently working on paying down my margin account, I now have over $50,000 in cash available in my margin account. This means that my margin account is in a much more secure position. Nonetheless, when it comes to margin debt, there is always some level of risk involved, and you can never be entirely safe.

Make sure to understand the rules of the TFSA before contributing to it and ensure that you stay within your contribution limit. By doing so, you can enjoy tax-free dividend income.


John Guy said...

Transfer in kind from non register to TFSA, the transfer is consider as a deposition.
If you have capital gain, you will have to pay capital gain tax. However if you have capital loss, you cannot claim the capital loss at transfer.

John Guy said...

My portfolio value

November 25,2022 $324,788.4
January 3,2023 $321,418.16
January 16,2023 $335,292.67
February 10,2023 $333,791.38
March 17, 2023 $322,041.48

Sunny said...

Thanks for sharing, I will look into that. My portfolio went down also. My non-registered portfolio closed under the $140,000... Not fun these days, but stocks are cheap, time to buy.


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