mercredi 24 octobre 2018

Busting the limits

If you're like me, your contributions to your TFSA and to your RRSP have been done many months ago. And all the money has been invested. So, now, you see the 9% decline of the S&P/TSX over the last month and you say to yourself: "Fuck, how come I've already invested all I could?".

Well, maybe it's time to bust your limits.

With your RRSP, you can invest 2000$ more than what you're allowed to without a penalty. It gives you a little flexibility in times like these.

And with both accounts (TFSA and RRSP), for every month you have put more money than what you're allowed to (excessing the 2000$ flexibility you have with the RRSP, in that particular case), you may have to pay a 1% penalty (may have to pay, because I think the governement won't bother you for a few dollars, but I may be wrong). For instance, if you've put 5500$ in your TSFA already and you decide to add 1000$ on november 1st, you may have to pay taxes on the 1000$ that's over what you're allowed to.

Precisely, you'll have to pay 1% for each month where you've busted your limit. So, in that case, you'd have to pay 20$ for 2 months of an excess of 1000$.

I don't know if the market will continue to drop and if it's the right moment to invest, but it's interesting to know that, by the end of the year, if we want to put some extra money in our registrered accounts, the penalty isn't that heavy.

Obviously, a market drop in the beginning of a year wouldn't be a good moment to apply that strategy.

2 commentaires:

  1. Or you invest in a regular account and transfer the money to the TFSA early January. If the market drops during that time, then you can claim the loss of your 2018 income tax report. If the market rises then you pay taxes on the profit but the bulk of the long term gain will be protected from the fisc if in a TFSA

  2. "may have to pay, because I think the governement won't bother you for a few dollars, but I may be wrong"

    Turns out they actually will bother you for some small change - I accidentally exceeded the TFSA limit by $2000 for two months last year and the penalty letter arrived in the mail not long after...