# 18, Need Help Understanding Some Stuff, Mainly TFSA-Related



## CLanz (Oct 1, 2012)

Hey,

I'm an 18 year old who's taking a year off before attending university for Finance in Canada or overseas in England. Regardless, I want to work in Toronto upon completion of my degree so I can live at home for a few years and amount wealth. 

Before _we_ delve into my course(s) of action I'd like to point out that I'm currently debt free and will graduate debt free without paying a penny out of my pocket, thanks to my parents!

Now that I'm the age of majority in my province I'd like to open up and max out a TFSA. More likely than not, I'll be able to contribute more than the $5,000 contribution limit but, from my understanding, there isn't much of a point because it's taxed. Additionally, there's no point in opening up an RRSP because the whole point behind an RRSP is to defer tax. Since I'm not in a tax bracket because I'm jobless an RRSP currently serves me no purpose.

A couple questions from that,

1. Where should I open up my TFSA? My mom's broker said that TD is a good bank to open it at. I've heard that a Questrade Tax Free Trading Account is good. I'm literally clueless as to where I should open it.
2. How should I go about diversifying my $5,000? Where can I read up about what stocks, bonds, GICs, ETFs, ect. I should pick? 
3. Should I over-contribute or should I wait till the next year and max it out then?
4. I'm right when I say I shouldn't open up an RRSP because I'm jobless, right? 
5. What should I do with my extra money that's sitting around? Is there an account that's lightly taxed where I can have stocks, bonds, ect?

Sorry if this is sounding basic!

6. Hypothetically, if I open up a TFSA when I'm 19 will I be able to contribute $10,000 or just $5,000? In other words, is my contribution limit increased because I started a year late?
7. I've got nothing but time, is there anywhere I can read, be it books or blogs, about investing and how I should go about it? I remember seeing something about 8 books on this site but I can't seem to find them.
8. What's a good rate of return (don't know if that's the term) on my investments? 10%? 
9. Stock goes from $6.00 to $20.00 in three years. Is this growth considered low, normal, high? 

That's all for now!

Thanks everyone!


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## stardancer (Apr 26, 2009)

CLanz said:


> Hey,
> 
> I'm an 18 year old who's taking a year off before attending university for Finance in Canada or overseas in England. Regardless, I want to work in Toronto upon completion of my degree so I can live at home for a few years and amount wealth.
> 
> ...


Hope that helps. Hope others can give you more detail.


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## CLanz (Oct 1, 2012)

stardancer said:


> Hope that helps. Hope others can give you more detail.


Thank you, it did! Correction on number 4. I meant to say RRSP, not TFSA!


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## cjk2 (Sep 19, 2012)

1. I opened up my TFSA at TD because they're the only ones who offer TD e-series, which I decided to start investing with. I think e-series are a great start for any investor. On the other hand, if you want to "play it safe" and keep funds liquid, go with a HISA TFSA from another institution that offers better interest rates (you should be able to find one offering 3%, but not at the big banks). Depends on whether you think you'll need to money anytime soon--if you're planning to leave it in there for many years, go with investing. If you might need this money within the next year or few years, go with HISA. 

2. Can't help you much here. ETFs are probably out since you need a trading account and a big enough portfolio to make it worthwhile. Stocks and bonds are great but it's better to go with index funds rather than picking & buying individual stocks/bonds yourself for now. GICs--don't know much about them since I've always heard they weren't really worthwhile. (Don't take my word on it though.)

3. NEVER OVERCONTRIBUTE. There are big tax-penalties! Contribute the max amount you can and no more.

4. Doesn't really have much to do with the fact that you're jobless (you can always defer claiming the contribution when you do make income), but true that you should not bother with an RRSP right now. Reason being: 1) you likely have almost no (if any) contribution room anyways (it's based on your income from previous years). Like with the TFSA, if you don't have the room DO NOT OVERCONTRIBUTE. 2) RRSPs are meant for the long-term. You still have lots of years of school ahead of you--it's best not to keep your money locked up in an RRSP in case you might need it. Now in your case it's not a big deal about the withdrawal penalties--as a student you probably won't need to pay tax on it anyways. BUT, if you withdraw, you lose that contribution room FOREVER (unlike a TFSA). This is room you will sorely miss once you graduate and really start earning money.

But really the second point is moot since, as mentioned in point 1, you probably can't contribute anyways.

5. Sorry, can't help here. I myself am still in the process of maxing out my TFSA/RRSP so I haven't really looked into the "other options" much yet. As far as I know though, you'll have to go with a non-registered account that IS taxed. But, you may be able to employ various strategies to minimize the tax paid. (Again, not sure of the details here.)

6. $10k at age 19, whether or not you opened up an account at age 18. Contribution room always gets carried forward automatically. But really in your case, more likely $10,500 since I believe it's nearly certain that the TFSA amount will be increased to $5500 next year (due to inflation).

7. The Canadian Couch Potato site has a few great book recs about index investing that I found very interesting and helpful.

8, 9. Not sure...


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## Eclectic12 (Oct 20, 2010)

For # 3 - Like others say - don't over-contribute to a TFSA. 

The penalty is 1% of the highest over-contribution amount *per month*, until a transaction gets rid
of the over-contribution.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/txtn/txtn-eng.html

What can add to the tax hit is that the reporting by the financial institutions to the CRA is something like yearly, so that it could be ten months or more after the penalty has started that the CRA notifies you of the tax penalty. By that time it's 10 x (1% x highest over-contribution amount for each month) when you first find out about it.


For number 4 - A factor to consider is that the account (RRSP or TFSA) costs to have open. If nothing, then the timing is up to you. If it costs $100 per year to have open, then you probably want to wait.


For number 6 - The TFSA contribution room is added by being 18+ and a resident on Jan 1st of any given year. Note that non-residents for tax purposes keep the TFSA but do not accumulate more contribution room while they are non-resident.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html


When you open a TFSA account simply determines when you can start contributing/withdrawing - the granting of TFSA contribution room is separate from whether you have an account or not.

For example, say your birthday is May 8th and you decide to open your first TFSA on Feb 4th, 2013 (you are still 18). On Jan 1st, 2013,
you will have $10K TFSA contribution room ($5K on Jan 1st, 2012 for being an 18 year old resident and another $5K on Jan 1, 2013 for being a resident who is over 18). Since the TFSA account is opened on Feb 4th, 2013 - that will be the first time you can make use of the TFSA contribution room that has already been granted.

It is the Jan 1st that adds the TFSA contribution room - not turning 19 years old. Contributing will reduce what TFSA contribution room remains and withdrawals this year will be added back the following year (ex. withdraw $1K in 2013 will be re-added to the TFSA limit in 2014).

I find it best to keep a running total, like balancing a cheque book.


http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html


Cheers


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