# Whats the best way to ‘use’ a TFSA?



## NicW11 (Mar 3, 2012)

I’ve done a lot of googling this, but I’d like some opinions from investors here as well. 

In short - is it better to invest in long term, high-dividend paying stocks or quick high capital gain through a TFSA?

I’m new to DIY investing, (Until now, just allowed our FA to take care of everything for us). Until recently, I didn’t realize that a TFSA could be more than a plain old savings account. I never bothered to put much of anything into it b/c the interest rate was crap, but what that means now is that we have almost all that room available to us. And, with our newfound knowledge re: TFSA’s, I’m ready to make them work for us! 

Before yesterday, we only had $400 in TFSA’s between my husband and myself (leaving, obviously, $39,600 in room). Yesterday, I transferred $8,500 to our TFSA Questrade account, and invested about half each into 2 different stocks. 

But, now I wonder if I used the TFSA the right way. I invested in stocks that I think have (hopefully) quick growth potential. One of them in particular, I plan to exit in less than 2 months; the other – maybe 4 months or so. *I will be financially able to max out both TFSA’s this calendar year*, therefore I wonder if it would have been smarter to save room in my TFSA to invest in long term, high-yielding dividend stocks so that the growth and dividends are tax-free instead of opting for quick tax free capital gains, since this is going to leave our TFSA empty (this portion anyway) for the rest of the year until I can re-invest in 2013? Maybe I should have made these particular stock purchases through my margain acct instead?

Would love to hear your opinions on how you choose to use your TFSA?
Nic


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## Spudd (Oct 11, 2011)

There's no reason you *have* to withdraw the money you gained from these stocks from the TFSA once you sell them. You can leave it in there, and then invest it in dividend paying stocks if that's what you choose to do. 

Personally I chose to go for REIT's and dividend stocks in mine, that I plan to hold long-term. But using it for capital gains is an equally fine strategy.


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## Zeeshan Hamid (Feb 28, 2012)

I consider TFSA as part of my retirement account ( along with RRSP). TFSA will give me tax diversification. If everything goes well, I wont have to withdraw a penny from TFSA for another couple of decades. 

That said, I don't think investment style should be driven by account type. Instead, look at all your investments and all accounts (TFSA, RRSP, taxable) and decide where to put each investment.

I don't trade (stocks are strictly for long term for me), but if I did I'd do it in a taxable account so capital gains get taxed at a lower rate and capital loss can be written off.


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## HaroldCrump (Jun 10, 2009)

TFSA can be used in a whole variety of ways.
Some folks consider the TFSA as their cash savings or emergency savings account.
That is not the best use _if at the same time you are earning dividends and capitals gains in non registered accounts_.
In a case like that, it is better to reverse the holdings i.e. keep cash savings outside the TFSA and use the TFSA for investing.

For an investment oriented TFSA, you say you have two choices - dividend paying stocks or growth stocks.
What may drive that decision is whether you have any non registered trading accounts, and what tax rates you are paying for dividends and capital gains under that.
Dividend taxes can be quite punitive at high income levels.
It is a commonly circulated rule of thumb to keep dividend paying stocks outside registered accounts, but it is not always the best.

If you plan to be a high volume trader, it is also better to do all the trading inside registered accounts to avoid PITA during tax time.

All said and done, your choice of a growth stock inside the TFSA is not bad by any means.
You get tax free compounding and the potential to grow your account fast.

Good luck.


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## Soils4Peace (Mar 14, 2010)

Long term high growth tax free


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## Sampson (Apr 3, 2009)

It depends.

Will you pay more tax on the dividends paid outside a registered account? or will you pay more from the capital appreciation of high growth stocks?

Obviously this depends on your other income, investment time-frame, whether your RRSP is maxed, how you plan on using the funds (when they will be withdrawn), investment growth rates.

Difficult to answer all those factors.

Clearly an investment growing 10X in value over a few years is much better housed in a TFSA than a dividend stock - if you can pick them. The downside risk is reduced TFSA room (if your investments fall severely in value), and higher taxes (on the dividends).


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## avrex (Nov 14, 2010)

HaroldCrump said:


> If you plan to be a high volume trader, it is also better to do all the trading inside registered accounts to avoid PITA during tax time.


Just wondering, what is PITA?


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## CashMoney101 (Mar 6, 2012)

A delicious flat bread. Or a pain in the uhh. Pain part. 

As for the TFSA I'd say use it for gains but be careful about losses-- they erase your hard earned contribution room and can't be claimed! So it's a double edged sword really.


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## HaroldCrump (Jun 10, 2009)

avrex said:


> Just wondering, what is PITA?


Pain in the you-know-what


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## MrMatt (Dec 21, 2011)

There are lots of ways. 
I've gone "simple" by simply putting my emergency fund (mostly HISA cash) in there.

Now that the limit is a good size I'm thinking of putting some retirement savings (more equity) in there.
I'm not saying it's the best way, but it's not bad IMO.


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## NicW11 (Mar 3, 2012)

Spudd said:


> There's no reason you *have* to withdraw the money you gained from these stocks from the TFSA once you sell them. You can leave it in there, and then invest it in dividend paying stocks if that's what you choose to do.
> 
> 
> Spudd - Of course! I never thought about that. Thank you for making the lightbulb go off! So, just because I sell the actual stocks doesn't mean I've made a withdrawl from my TFSA right? Its only considered a withdrawl if I actually take it out of Questrade? That makes sense. So much to learn!
> ...


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## Cal (Jun 17, 2009)

Agreed. Both strategies are correct.

Depending upon which stocks you select.


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## Eclectic12 (Oct 20, 2010)

NicW11 said:


> I’ve done a lot of googling this, but I’d like some opinions from investors here as well.
> 
> In short - is it better to invest in long term, high-dividend paying stocks or quick high capital gain through a TFSA?
> 
> ...


In short - whichever you are sure will happen. 

Bear in mind that like an RRSP, if you are wrong and the investment tanks - that loss is of no benefit (i.e. it can't be written off against other gains) and is difficult to replace (i.e. only other investments growing or new contribution room allows more investments). 

So be sure the investment strategy minimises losses and improves gains.


It's good you now know that there are more options for a TFSA.


Then too - another way I have used mine is to collect the dividends and transfer out to pre-pay my mortgage.


Cheers


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## Eclectic12 (Oct 20, 2010)

NicW11 said:


> Spudd said:
> 
> 
> > There's no reason you *have* to withdraw the money you gained from these stocks from the TFSA once you sell them. You can leave it in there, and then invest it in dividend paying stocks if that's what you choose to do.
> ...


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## JustAGuy (Feb 5, 2012)

Sorry but I haven't traded TFSA's or stocks at all before so I want to make sure I understand this before I get into it...

I've placed $5k with a TFSA in questtrade. The money is just sitting there.. at the moment, not actually invested in anything... but that counts as my $5k contribution, right? So... if I invest in something, and then sell that stock, returning the 5k into my questtrade account... where it still is just sitting ... does that count as having withdrawn my money for the year and I can no longer do anything with that money for the rest of the year? Or does it have to be fully withdrawn into a regular checking / savings account or something before it counts as having been withdrawn from a TFSA?


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## CashMoney101 (Mar 6, 2012)

Yes that $5k is considered as contributed and No, what you've described would not count as a TFSA withdrawal. All you did was buy stock within the TFSA and sell it, but the money is still inside the TFSA just like it was when you started out. It would indeed count as a withdrawal if you transferred cash back out of your questrade and to your bank account. Think of the TFSA as an assortment of cash/stocks/bonds/mutual funds in it's own basket(=account). You can freely trade from that basket on the open market and swap out one thing for another without worrying about contribution room or taxes. What you do have to keep track of, is every time you add or remove cash from that basket and one of your other baskets (ie: chequing account).


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## Financial Cents (Jul 22, 2010)

I use TFSA for dividend paying stocks and REITs. My plan is to withdraw the dividends paid in another 20 years to live off, not sell the stocks or touch the capital. This account is a major gift from the government.


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