# Why are top income categories not maxing out TFSAs?



## Eclectic12 (Oct 20, 2010)

I am not interested in discussing who benefits the most from a TFSA or what transfers from taxable accounts are keeping people in the lower income levels so please put comments along those lines into another thread.


What I am interested is that despite the conventional wisdom that high income earners will max out their TFSA ... from $100K income and up, none of the high income earner categories have *all* opened TFSAs, never mind that maxed it out. 

It seems the $250K and over category does the best at maxing out but this group looks to be short of 50% of TFSA holders, where somewhere around 30% have not opened a TFSA.


This does not make sense as I'd expect these income levels to love the TFSA where they'd be making substantially more use of it.


Anyone have any thoughts or can think of any reason that these income levels would not want to max their TFSA?



Cheers


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## lonewolf (Jun 12, 2012)

The old saying is the more you make the more you owe. Spending out of control for the high income.


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## brad (May 22, 2009)

My guess is either that some people simply haven't taken the time to learn about the TFSA and how it could benefit them, or don't trust it (e.g., they figure some future government will change the laws and make them taxable), or they are spending for today and don't have any extra money to sock away.

Economists might think that everyone will behave optimally, but in fact there are many barriers in terms of time and information/education/motivation that act against financially optimal behaviour.


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## HaroldCrump (Jun 10, 2009)

Eclectic12 said:


> What I am interested is that despite the conventional wisdom that high income earners will max out their TFSA ... from $100K income and up, none of the high income earner categories have *all* opened TFSAs, never mind that maxed it out.
> It seems the $250K and over category does the best at maxing out but this group looks to be short of 50% of TFSA holders, where somewhere around 30% have not opened a TFSA.
> This does not make sense as I'd expect these income levels to love the TFSA where they'd be making substantially more use of it.
> Anyone have any thoughts or can think of any reason that these income levels would not want to max their TFSA?


I will hazard a couple of guesses why this may be the case:

- A lot of high income earners are self-employed professionals, such as doctors, accountants, consultants, etc. who may be sheltering their income in professional corporations.
They do not need the TFSA as much and in fact, it may be more complicated for them to "withdraw" their income from professional corporations to invest in a TFSA

- The uber-wealthy have other, more sophisticated, tools to shelter wealth, such as trusts.
Many super wealthy hold their real estate, art, and other investments through a trust to shelter them from litigation and for sophisticated estate planning/inheritance.

- Several so-called high income individuals are employed in high workload sectors like O&G, mining, I.T. etc. and are not as investing-savvy.
Even though on paper they may be "high income", a lot of their time/energy is spent on their work sites, leaving them little time to think about investment strategies.
Many such folks are probably fairly young (i.e. in their 20s) and have yet to start planning for family life, retirement, etc.


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## My Own Advisor (Sep 24, 2012)

We have a decent income and we max out the TFSA (both accounts) as soon as we can every year.

I have no idea what these other people are thinking...especially any adult making over $100k, surely they could easily max out their $5,500 each year. At least they should.


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## NorthKC (Apr 1, 2013)

Having prepared tax returns for many high-income people for several years now, the most common response for not contributing to RRSP and TFSA is "I can't afford it". Here's why:
1. They all have houses more than $500,000-$1,000,000 but paying bare minimum.
2. They go away on vacations (often flying to another country) for their family
3. Have high-end cars that they're still paying for.
4. Eating out almost every night.
5. The latest in electronics almost every year.
6. Etc, etc.

So, in short, they're living the high life now but too busy paying off the bare minimum payments to even have any money left over to pay into the TFSA/RRSP.


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## peterk (May 16, 2010)

I think Harold has nailed the list pretty well of the type of people who don't bother to use the TFSA.

Even at a value of 50k and 8% returns and a 30% tax rate, you are only saving yourself $100/month in taxes, and that's the most optimistic case. These wealthy folk make that much money in 1 hour of work, 2 tops.

Really, who is the winner in the end? The upper middle class person who has taken the time to thoroughly learn about investing and taxes, making sure he doesn't pay 1 red cent more than he has to? Or the upper middle class person who is extremely focused on growing his income/business and can't be bothered with trifling financial distractions that complicate his life and remove his focus from more important matters?


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## Sherlock (Apr 18, 2010)

NorthKC said:


> Having prepared tax returns for many high-income people for several years now, the most common response for not contributing to RRSP and TFSA is "I can't afford it". Here's why:
> 1. They all have houses more than $500,000-$1,000,000 but paying bare minimum.
> 2. They go away on vacations (often flying to another country) for their family
> 3. Have high-end cars that they're still paying for.
> ...


Another big one is spending money on their (adult) kids. It's harder for the early 20s group to find decent paying jobs today than a generation ago, so young adults tend to delay moving out on their own and still rely on their parents for money.


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## praire_guy (Sep 8, 2011)

So, if the wealthy are not taking advantage of the TFSA, then why is Justine rolling it back to 5500?

I thought she advocates for the "middle class"?


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## Ihatetaxes (May 5, 2010)

Chiming in for the "wealthy" who DO max it out. Yes on January 1st I max out our TFSA's, RESP and RRSP's. The rest of the year I just dump cash into our non registered accounts. Total this year was well over $200k into investing accounts. Another $100k saved within my corp.

And despite earning mega bucks we almost never eat out (less than once a month) since we like cooking and family time at home, have a house that is paid for and worth less than 2 years of income, cars are paid for and the wife drives a value brand (her choice). My wife uses coupons and price matches and we generally don't spend much. We have some nice consumer electronics but just replaced a TV that was 10 years old moved that one into the basement for another 5-10 years hopefully. Clothes we spend very little. Vacations we used to spend a lot more than we do now since our kids are young but that will increase a lot in the next few years.

Life is very good here but money has little to do with that other than giving us options and freedom and a decent place to lay our heads at night.


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## heyjude (May 16, 2009)

I used to be one of those high income people with a corporation, and I used to fully subscribe to my TFSA every year. Now that I have retired (no pension) I withdraw modest amounts from my portfolio and my corporation (which is now a holding company, effectively my tax sheltered retirement plan). I am loath to withdraw taxable money to invest in a TFSA unless my total taxable income stays within the same tax bracket.


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## Taraz (Nov 24, 2013)

I'm going to make far, far less than $100K this year, and I'm maxing it out. 

Maybe some people don't realize that it's a better deal than the RRSPs? I know at least one person earning $100K+ who can't afford to invest at all due to insane house/car payments. 

Also, some people just don't care about money as much as we do.


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## RCB (Jan 11, 2014)

Personal reasons for not maxing out TFSA on a $100,000+ income:

-single income for a family of 4, with two kids at home, with no income splitting allowed this year
-making RESP catch-up contributions to receive double grant money, as income in previous years did not allow for contributions (one kid, two years' contributions = $5,000)
-increased insurance expense for teens driving to work to save for their schooling
-debt repayment, while rates are low, for long-needed renovations
-increased household bills...Wynne is killing me on electricity, the municipality is killing me on property taxes and water bills
-two TFSAs to top up on one income


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## OhGreatGuru (May 24, 2009)

Like RCB, I was going to say that $100k is not that high an income anymore, if you are paying a large mortgage, putting money into RRSPs & RESPs, etc.


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## donald (Apr 18, 2011)

Not sure what the max is for rrsp but i think it's north of 20k or 22k -yr
On 200k a yr that is 10%
Most people regardless of income have trouble saving 10%(this is sort of the accepted standard of a proper saving rate for people who actually put effort into saving)
The rrsp is more widely used and i think most financial salespeople push this avenue over tsfa because it's more optimal to make money from(ie:mer's)(diy investors is a low % of people)

Also most high earners i assume(like most of us)like to prob keep and retain a healthy % in plain old savings accts(ebbs and flows)I would say at least 5-10% a yr?(i know you can use a tfsa for this but most assume it is some type of pita *** acct to access)
These 2 points alone can account for nearly 20% a yr income of 200k(that is before tax also)
It's not easy doing everything one can do
maxing out everything
Most people making 200k a yr don't want to live like a person who makes half that amt and they get sucked into life style inflation(or chasing the jones's or fitting into the neighborhood etc)
I would say rrsp is 1st
savings in plain accts 2nd
resp is 3rd even
and coming in last is tfsa
as backwards as that seems if you are literate.


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## Daniel A. (Mar 20, 2011)

I was well over the 100 mark for many years till I retired, I did open an account but never got around to filling it.
My wife was pushing close to the 100 mark and again had an account but never used it.

For us with RRSP's plus both having pensions and great income we could be frivolous, saving more money was not a priority.
We never had to save or plan for anything we just bought what we wanted when we wanted. 


Today we are retired and living well.


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## RCB (Jan 11, 2014)

I should have added to my post above that it can't be assumed that income of $100,000 or more in one year means it has occurred in the previous years, or will in the future. It has been a long, slow climb for us to see that level of income, and likely won't be repeated in 2016, if ever. It's likely a different ballgame if one has been at that level for many years. Children in the home also make a difference. We will not have dependent children in two years, at the same time our mortgage is paid in full. At that point we should be able to really begin to catch up on both TFSAs.


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## donald (Apr 18, 2011)

Was thinking about this further:left out real estate(mortgages)
Even here and certainly more widely is that people should always pay the mortgages down faster(lessen the interest)
Extra savings past a decent amt and society and financial institutions esp even in low rates environment push the 'best investment is debt re-payment'so you have people go that way
It also has been the trend that real estate has been clipping at a 6% gain yr for the last 20 yrs(these trends convince people to shun equity markets in favor of real estate)
and systemically the Gov will do almost anything to prop up housing where as in global equities the system does not have the same 'controls' in place(it is way more darwinan)
I know people my age(36)and younger in general think the market is more like a casino(that is the perception)We all witnessed our own parents get gutted in 2008 and that has a profound effect(people also like to think of a home as a retirement fund to sold and profited on later in life in downsizing)
There is so many reason when one stops to think why Canadians don't use the tfsa(high income or not)


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## My Own Advisor (Sep 24, 2012)

When you think about it, there is lots of competition for household dollars. If you have kids, RESPs and keeping some cash on hand likely move to the forefront after the mortgage is paid. If you're a high income earner, you likely want to focus on your RRSP before your TFSA for the tax-generated refund. If you have a large mortgage debt, I could see you paying down your mortgage more aggressively as to remove this liability from your life.

Most Canadians would be doing very well if they could make extra payments on their mortgage and max out their TFSA or RRSP. If you can do all three of these things and save money for your kids' RESP, well, that's pretty amazing when you think about it. That savings rate would be approaching 40% net or more. 

If most Canadians could have a savings rate of 10-15% net income, they are doing well all things considered.


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## Eclectic12 (Oct 20, 2010)

brad said:


> My guess is either that some people simply haven't taken the time to learn about the TFSA and how it could benefit them, or don't trust it (e.g., they figure some future government will change the laws and make them taxable) ...


I'd have thought these folks would be talking to an advisor like the $50K income people I know.




peterk said:


> ... Even at a value of 50k and 8% returns and a 30% tax rate, you are only saving yourself $100/month in taxes, and that's the most optimistic case. These wealthy folk make that much money in 1 hour of work, 2 tops.


Will the payout be 8% for the entire investment, done in $5K or $5.5K or $10K chunks?

A more optimistic view would be a purchase for the $5K 2009 chunk is more like BMO where there would be an unrealised CG of roughly $45. The first year's worth of dividends is more like 9.3% payout.


Or if it's the "average" route ... a more optimistic view would be that the high income earner is in the financial industry where the work skills have been leveraged to currently have more like a $100K TFSA.




peterk said:


> ... Really, who is the winner in the end? ...
> Or the upper middle class person who is extremely focused on growing his income/business and can't be bothered with trifling financial distractions that complicate his life and remove his focus from more important matters?


 ... and I thought this was precisely why these folks hired the people they do so that they could get the best return with minimal time aware from their business.


Cheers


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## Eclectic12 (Oct 20, 2010)

heyjude said:


> I used to be one of those high income people with a corporation, and I used to fully subscribe to my TFSA every year. Now that I have retired (no pension) I withdraw modest amounts from my portfolio ...


So if I am understanding correctly ... your corp was structured so that moving money over in a high income situation was an overall benefit, despite what work was required?


Cheers


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## Calgary_Girl (Apr 20, 2011)

My Own Advisor said:


> When you think about it, there is lots of competition for household dollars. If you have kids, RESPs and keeping some cash on hand likely move to the forefront after the mortgage is paid. If you're a high income earner, you likely want to focus on your RRSP before your TFSA for the tax-generated refund. If you have a large mortgage debt, I could see you paying down your mortgage more aggressively as to remove this liability from your life.


Exactly! My husband is the sole income earner and we are in a high tax bracket ($200K). We are making extra mortgage payments, maxing out the Spousal RRSP, putting the maximum into our kids' RESP's while also putting money aside into an RDSP for our eldest child who has special needs. Even after all of that, we still manage to max out MY TFSA every year. Hubby is an American citizen by birth and Uncle Sam doesn't recognize TFSA's so we have never opened one for him.


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## heyjude (May 16, 2009)

Eclectic12 said:


> So if I am understanding correctly ... your corp was structured so that moving money over in a high income situation was an overall benefit, despite what work was required?


I'm not completely clear on what you mean by "moving money over" and "work required". But I will attempt to clarify the situation. 

When I was working, my Corporation got paid for my work. Each year I took dividends. The amount of the dividends was determined by what I needed to live on and the amount available in the Corporation's capital dividend account. While working, I did withdraw enough dividends to contribute to a TFSA. I met with my accountant to determine the most tax efficient solution. So yes, that tax planning was "work". Implementing the plan required writing a Corporate resolution to pay a dividend of $X (which my accountant prepared) and writing a Corporate cheque to myself. Not too difficult.


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## Eclectic12 (Oct 20, 2010)

The statement in post #4 was:



> A lot of high income earners are self-employed professionals, such as doctors, accountants, consultants, etc. who may be sheltering their income in professional corporations ... it may be more complicated for them to "withdraw" their income from professional corporations to invest in a TFSA


So I was thinking a holding company might have similar challenges, whatever the challenges were.

From what you are describing ... it does not sound too bad.


Cheers


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## My Own Advisor (Sep 24, 2012)

Calgary_Girl said:


> Exactly! My husband is the sole income earner and we are in a high tax bracket ($200K). We are making extra mortgage payments, maxing out the Spousal RRSP, putting the maximum into our kids' RESP's while also putting money aside into an RDSP for our eldest child who has special needs. Even after all of that, we still manage to max out MY TFSA every year. Hubby is an American citizen by birth and Uncle Sam doesn't recognize TFSA's so we have never opened one for him.


Impressive work.


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## Blue Horseshoe (Jun 9, 2013)

I'd hazard a guess that anyone making serious money doesn't give a **** about $40k in non-taxable investment income.


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## OnlyMyOpinion (Sep 1, 2013)

Blue Horseshoe said:


> I'd hazard a guess that anyone making serious money doesn't give a **** about $40k in non-taxable investment income.


But you'd be wrong.


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## Eclectic12 (Oct 20, 2010)

Blue Horseshoe said:


> I'd hazard a guess that anyone making serious money doesn't give a **** about $40k in non-taxable investment income.


You seem to be confusing the contribution limit with what's earned in the TFSA itself. There's no way $40K of income is going to build a TFSA that has a FMV of $120K or over $1 million, as had been documented.


Cheers


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## CPA Candidate (Dec 15, 2013)

The accountants I know who make good salaries don't even invest, to say nothing of maxing an TFSA. There is an large swath of people who don't trust stock markets and would rather pour money into their home or car.


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## Nerd Investor (Nov 3, 2015)

The two biggest things I see are people who are paying down a mortgage or retaining funds in a corporation, added to the fact they are usually using other free cash flow to max out their RRSPs. 
Still, you see some people with cash in their non-reg account who are either too complacent or haven't received good advice to open/max out a TFSA.


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## Eclectic12 (Oct 20, 2010)

CPA Candidate said:


> The accountants I know who make good salaries don't even invest, to say nothing of maxing an TFSA. There is an large swath of people who don't trust stock markets ...


Wow ... I find that fascinating ... the CAs my parents dealt with were somewhat similar as they preferred GICs/HISAs to stocks/bonds. I haven't been in contact but I'd bet they were putting some into a TFSA in fixed income investments.




Nerd Investor said:


> ... you see some people with cash in their non-reg account who are either too complacent or haven't received good advice to open/max out a TFSA.


That's where I can understand middle of the road/lower level types who aren't using an advisor missing the TFSA boat. Where there's a higher income, one would expect there would also be an advisor.

But then again, as my aunt used an advisor where she was complaining her RRSP hadn't grown much despite having one since the RRSP was introduced. It seems here advisors through the years had her at 90% fixed income or above. 


Cheers


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## 1980z28 (Mar 4, 2010)

I have income in the mid 80`s my wife mid 20`s.my children, 3 boy`s make between mid 20`s to mid 40`s

I max my TFSA,I do top up my wife and 3 boys to the maximum that is needed,everyone is in GIC`s,mine is 100 % equities

I work 4 days a week,just started new job,previous job for 7 years was 3 day`s a week,now not so much free time and a cut in pay,so I can spend more time with wife before we retire

Nice to have a place to put cash tax free


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## donald (Apr 18, 2011)

Ironically if any profession has a edge you would think of a C.A
That is very interesting because who could better read the financials
Wonder if CA are more likely to be risk adverse?
Also the companies they are running they must vastly approach different when giving feedback(ie:allocating in ways that aren't as conservative and it makes logical sense)
Def Interesting if true accountants don't invest-seems so counterintuitive

Ps:my sister is a cga and I will say she is beyond conservative yet in her role at work she is running the number to expand and yet she worries little and she has a lot of sway in the business she works at(and decisions that effect many people including herself).


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## fraser (May 15, 2010)

I think that the assumption that a high income earner is also a financially savvy person is tenuous at best.

Over the years I have worked with a number of high income people who were considerably less than savvy than most when it came to personal finances. We used to have a saying in our business...it is not what you make it is what you keep. I suspect that it has more to do with other factors like upbringing, personality, spouse, etc.


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## My Own Advisor (Sep 24, 2012)

Most of the CAs I know are conservative investors. They are also frugal people. 

Like Fraser, I have also worked and known a number of high income earners over the years. _High income doesn't mean financially smart_. 

You could argue there is a nature vs. nuture argument here when it comes to people being good and not so good at money. It has very little to do with what you make although the more you make, the more opportunity you have to invest and keep some of that for yourself.


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## junkyardbottles (Apr 3, 2009)

We gross around 250k...but we have not been maxing out our TFSA's since we've had kids. By the time tax time comes around, we have greater temptation to put as much as we can into RRSPs to get a larger refund (which we usually put towards our mortgage). 

Perhaps we will be able to max out this year's contribution limit, but it would take a decade for us to "catch up" -- between maxing out RESPs and RRSPs and making sure we still have "emergency savings", I am not sure how we could possibly max out our TFSA.


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## My Own Advisor (Sep 24, 2012)

We don't have that income (like junkyardbottles) but good jobs all the same. We have no kids so there is no excuse for us, we feel, not to max out both TFSAs every year. I think if we had kids obviously priorities would change, $$ to them, RESPs, etc.

Our goal is for the hat trick: max out TFSAs, then max out RRSPs, then if possible make some double-up payments on our mortgage. That would be stellar but it's really pushing it for us. We like to travel too much.


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## RBull (Jan 20, 2013)

^ Triple play. I like it. And as you know we like travel too! 

Even with kids I can't imagine having an income of $250k and not being able to save 11,000 for TFSAs let alone max RRSPs. We maxed TFSA's last year 20K and will max 2016 10k with an income a small fraction of that - and we're retired.


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## sags (May 15, 2010)

A US autoworker can earn over $100,000 per year with overtime, and yet when the recession hit there, US autoworkers were the highest bankruptcy rates.

It actually started before the recession, when auto sales were down and all overtime was eliminated.

He who has the most toys wins on the auto assembly lines.


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## RBull (Jan 20, 2013)

Reminds me of - A fool and their money are easily separated.


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