# Tfsa with regular withdraws



## russell55 (Jan 26, 2016)

Hi hi.
Ill get right too it.
I have been slowly saving some extra money with the intent of doing a lump sum payment to my mortgage.
To make the math easier i have about 50k saved.
My mortgage is 250k @ 3% and i am already paying more on a regular monthly payment then the min was.

Anyways...

Between me and my wife we have very little in our TFSA (15k and 8k)

I was thinking of putting this 50k into the TFSA and then using it to buy a bunch of Dividend (purhaps all monthly div paying stocks)

I already have that 15k returning a 8-9% return.

Even with some more conservative stock picks lets say i have a 6% monthly return.

My idea is to have this 50k invested in dividen paying stocks inside the TFSA account. Then each month withdraw that dividend money and pay that to my mortgage.

Am i breaking any rules on this. And wouldnt i be saving tax on capital gains etc.

Cheers
Thanks


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## gardner (Feb 13, 2014)

I'm not sure what you mean by "6% monthly return". A plausible annual return would be 6% or ~0.5% per month. A 6% return would be a potential long term average though, not something you would expect necessarily as a short term income return. That figure would be closer to 4% maybe, based on a portion of blue-chip dividends and a portion of 3% bond or GIC yields. In this case, my opinion is that the safer move is to just put the 50K against the mortgage since the return on that is guarantied.

If you do want to use an income stream emanating from your TFSA to help pay down your mortgage, there is no legal impediment. Every dollar you take out becomes a new dollar that you can put back in -- in the FOLLOWING calendar year. So you could use this strategy and then, after the mortgage is done, say, put the money back into your TFSA where it came from.


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## russell55 (Jan 26, 2016)

Ok thanks.

I did some more reading on the TFSA rules and it doesnt seam there is anything wrong about withdraws that way ( i might have got confusded about some stock day trading articles)

Im likey explaining the % wrong. So here is an example.

I have shares in these stocks EIT-un.to
Div.to
Ala.to
Fap.to

If for example i bought $50k worth of shares in ALA.to
Thats 2777 shares and would pay me $220 each month in dividen payments (these stock symbols i listed all pay monthly)

I would then say withdraw that $220 from my tfsa each month and pay that towards my mortgage.

This would be a better use of my money wouldn't it.

If i pay off my mortgage thats great i got rid of debt that costing me 3%.

If i do this investing my money is being put to better use.

Then in a few years or whenever really unless the stocks all went down in value. I could simply sell and withdraw this 50k if i wanted.

?


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## Eclectic12 (Oct 20, 2010)

russell55 said:


> ... My idea is to have this 50k invested in dividen paying stocks inside the TFSA account. Then each month withdraw that dividend money and pay that to my mortgage ...
> Am i breaking any rules on this ...


TFSA withdrawals can be used for whatever you want. The only rule I'd worry about is to remember that the TFSA withdrawals become contribution room *the following year*.
For example, withdraw through 2019 say $10K then in 2020, this will be added contribution room in addition to the annual allotment for 2020.




russell55 said:


> ... And wouldnt i be saving tax on capital gains etc.


Without selling the investment, you are saving the tax that would have been applied to the income and possibly saving some bookkeeping for things like return of capital (RoC) that change the cost base.

If your income is low enough that say eligible dividends give a tax credit - maybe it's not so good. If you income is middling to high, you are likely better off using the TFSA.

I did a mix of borrowing to invest in early 2009 (deducted the interest costs from income) as well as taking withdrawals from my TFSA to pay down my mortgage. As there were some stock sales in the TFSA, I saved the income type taxes as well as capital gains. I was making on lump sum mortgage pay down a year instead of on a schedule though.


Cheers


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## cainvest (May 1, 2013)

russell55 said:


> I did some more reading on the TFSA rules and it doesnt seam there is anything wrong about withdraws that way ( i might have got confusded about some stock day trading articles)


I don't see anything wrong with what you're planning, it's not like you'll be doing a large number of trades within your TFSA to warrant their attention.

Sure, using dividend output to help pay off the mortgage sounds fine just keep track of ALL of your withdrawals.


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## l1quidfinance (Mar 17, 2017)

No issue with the withdrawal. As others have said just be sure to keep track so you can add this to future contribution room. 

Just be very sure aout your investment decisions. 

In this strategy you need security of dividends and at a minimum presevation of capital. 

Div had a payout ratio of 113% and is currently partially funding it from the sale of assets. 

As for ALA. I wish you luck. 

How can they possibly sustain the current payout? Even there normalized net income (not earnings) was only $0.88c a share vs dividends of $2.25 

Importantly note this text on their latest earnings release



> AltaGas' previously announced balanced funding plan is designed to de-lever the balance sheet, fund the $1.3 billion capital program for 2019 and optimize per share cash flow and earnings growth. A combination of asset sales, *a reset of the dividend payout*, and a focused approach to strategic capital allocation will strengthen AltaGas' financial position and fund the capital program.


Edit to add the already did cut it to 0.08c to yield 5.3%. That's risking a lot of money on a stock that has cut its payout. For this type of strategy the payout should be stable or increasing.


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## cainvest (May 1, 2013)

l1quidfinance said:


> As for ALA. I wish you luck.


Ya, I looked at ALA a while back when they dropped .... I don't like their current financial situation and the 25 yr founder/chairman just stepped down.


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## like_to_retire (Oct 9, 2016)

l1quidfinance said:


> In this strategy you need security of dividends and at a minimum preservation of capital.
> 
> Div had a payout ratio of 113% and is currently partially funding it from the sale of assets.
> 
> ...


Yep, liquidman speaks the truth. Take heed.

russell55, when I originally read your post, I was taken aback with your present TFSA returns where you wrote: _"I already have that 15k returning a 8-9% return"._ Uh-oh, you have to realize that this is unsustainable. Do some research and you'll see this level of return is super high risk and often comes as a consequence of your capital being eaten up to support that imaginary level of total return.

Then you say: _"Even with some more conservative stock picks lets say i have a 6% monthly return"._ Hehe, conservative stock picks? That level of return is not conservative! (I'll assume you are referring to yearly returns here). 

A proper, conservative blue chip dividend stock offers a dividend of about 3%-4%, plus a capital appreciation of about 3% a year over the long term. You have indicated you want to keep your 50K capital intact and only draw the dividend each month to pay down your mortgage. You will not find a 6% dividend that is sustainable I'm afraid.

My advice, is to take advantage of a guaranteed, no-risk, tax free return, equal to what you're paying on your mortgage. Simply put the money against your mortgage. It cannot be beat - hands down - guaranteed. 

ltr


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## russell55 (Jan 26, 2016)

Thanks for all the replays. Answer my question and then some.

Yes i agree ALA and Div might not be the best. They were more of examples from my list of monthly div stocks.


I was thinking to spread this 50k if i do this. Across maybe 12-20 different stocks. Making ALA. Less of a worry. Some being higher risk some being low risk but likey with less of a dividend. Some reit come to mind.

Cheers everyone.


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