Long Term TFSA Question

4230 Views 7 Replies 4 Participants Last post by krackerjack121, Aug 5, 2009

krackerjack121

Discussion Starter · Jul 27, 2009

Hi all,

I want to take a second and paint a scenario a few years out from now.

Let's say that in ten years time I have a tax free savings account with $150,000 in it. ($50,00 principle and $100,000 gains) Assuming $5000/year contribution with no inflationary adjustments (to make the math easier). This is into one account at one instutution. Would I be able to split the money take $75,000 and transfer it into another TFSA at a different institution?

I realize that I can pull out the $50,000 worth of principle and then have the option to put it back in the following year. But what I am thinking is that if I made some really good gains like this would entail. I would be interested in changing up what the investment is. For example, say I am with an institution that specializes in mutual funds (Institution A) and I want to move some of that money into stocks. The probelm that I have with Institution A is that while they sell stocks the fees are considerably higher then Institution B which specializes in stock trading.

So to sum up my question. I want to take $75,000 out of Institution A and open up a TFSA with money from my current one at Institution B. Will that be allowed?

I know now that you can open up mutliple TFSA so long as the balance of the TFSA does not exceed the principle contribution limits.

Thanks,

Rocky

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high octane

· #2 · Jul 27, 2009

Whatever amount you withdraw is added to the limit the next year. So I would withdraw in Dec and then deposite into a new institution in Jan to save the transfer fees

I'm not sure if you can transfer more than the current limit that year

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Mockingbird

· #3 · Jul 27, 2009

TFSA transfers are like RRSP. You can do the bank to bank transfer anytime (with some sort of transfer fees). But, if you decide to actually withdraw $75k, then you cannot deposit it into a new account until the new year.

So in the new year, your new account will have a room for $75k plus $5k (if no inflationary adjustments)

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Sampson

· #4 · Jul 28, 2009

Aside from fees are there any other reasons you'd want to do this. CDIC insurance can obviously play a factor in such a decision, but just thinking out loud, I couldn't see many other reasons for it.

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krackerjack121

Discussion Starter · #5 · Jul 28, 2009

The main reason I was wondering was based on fees. I can't really think of to many other reasons why one would move it around.

Rocky

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krackerjack121

Discussion Starter · #6 · Aug 4, 2009

Mockingbird said:
But, if you decide to actually withdraw $75k, then you cannot deposit it into a new account until the new year.

So in the new year, your new account will have a room for $75k plus $5k (if no inflationary adjustments)

It is my understanding that you could only replace the orginal investment, not the accured growth as well. So under my scenario, I believe you would only be able to replace the $50,000 (no inflationary adjustments) And the $25,000 would not be able to be stuck back in.

Thanks,

Rocky

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Mockingbird

· #7 · Aug 4, 2009

krackerjack121 said:
It is my understanding that you could only replace the orginal investment, not the accured growth as well. So under my scenario, I believe you would only be able to replace the $50,000 (no inflationary adjustments) And the $25,000 would not be able to be stuck back in.

Thanks,

Rocky

That's one common misunderstood TFSA withdrawal rule.
You can withdraw as much as you want (up to full amount in the account), but you can't put it back into the account until the new year.

Here are some good examples from KPMG Canada.

"You can make a tax-free withdrawal from a TFSA at any time. When you make such a withdrawal, the amount withdrawn will be added to your contribution room in the next year and can be re-contributed in the future.

For example, if you contribute $5,000 in January 2009 and you decide to withdraw $4,000 in June 2009 so that you have only $1,000 remaining in your TFSA, you will not be able to re-contribute the $4,000 you withdrew until 2010. At that time, you will be able to re-contribute the $4,000 withdrawal along with your new $5,000 contribution limit for 2010, for a total of $9,000.

Investment income earned in your TFSA works the same way. For example, if your $5,000 investment in 2009 earns $250 and you withdraw the $5,250 in December 2009, you can re-contribute the entire $5,250 in 2010 along with your $5,000 contribution limit for that year, or $10,250 in total.

In a similar vein, if you invest your $5,000 TFSA contribution in the stock market and your share investment appreciates rapidly, to $20,000, for example, you could sell the shares and realize the $15,000 tax-free capital gain in the TFSA, withdraw the $20,000 cash proceeds and still be able to re-contribute the full $20,000 amount to the TFSA in addition to any other unused TFSA contribution room in the following year or later.

As a result, you could potentially contribute significantly more than $5,000 annually, and therefore earn more tax-free investment income."

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krackerjack121

Discussion Starter · #8 · Aug 5, 2009

Thanks for clearing that up Mockingbird.

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