Because it's a savings account, my TFSA can hold only cash and GICs.
False. Although it's called a savings account, your TFSA can actually hold a lot more than just cash or Guaranteed Investment Certificates (GICs). Like your Registered Retirement Savings Plan (RRSP), it's a "basket" that can hold a wide range of investments, including stocks, bonds, mutual funds, and managed portfolios. That means you can use your TFSA to invest in a diversified portfolio that meets your needs for security, income, and growth. It also means that everything you earn in your TFSA - interest, dividends, and capital gains - is tax-free. And, unlike your RRSP, tax will not be deducted from any money you withdraw from your TFSA.
If I have a TFSA at another financial institution and I want to move it to CIBC, there are no tax penalties involved.
True. There are no tax penalties associated with moving your TFSA - so long as you transfer your TFSA directly from one financial institution to another. What you don't want to do is withdraw your money from one TFSA and then use it to open a new TFSA. That would count as a new contribution, and could trigger over-contribution penalties from the federal government.
If you have a TFSA elsewhere and you'd like to transfer some or all of it to CIBC, speak with your CIBC Financial Advisor. Note that the financial institution you're transferring it from may charge a transfer-out fee.
It's better to contribute to my RRSP than my TFSA.
Trick question! There is no right or wrong answer to this question. Both RRSPs and TFSAs are an excellent way to generate earnings in a tax-favoured environment and save for your future goals. Whether one is more advantageous than the other depends on your marginal tax rate at the time you contribute compared with your marginal tax rate when you withdraw your funds. If your rate is higher when you contribute than when you withdraw, an RRSP is more advantageous because your contribution could result in tax savings that help to reduce your high marginal tax rate, and your withdrawals will be taxed at a lower rate. If your rate is lower when you contribute than when you withdraw, then a TFSA is more advantageous because all withdrawals are tax-free. If your marginal tax rate is roughly the same, then they're equally advantageous.
If you're not sure how to structure your contributions, your CIBC Financial Advisor can help you make the right choice, based on your goals, time horizon, and need for access to funds.
I can contribute to a spousal TFSA, just like I can contribute to a spousal RRSP.
False. There is no such thing as a "spousal" TFSA. However, what you can do is give your spouse the money to contribute to his or her own TFSA. The investment income it generates will not be attributed to you for tax purposes.
This makes TFSAs very useful as an income-splitting tool and effectively enables you to "double up" your contribution room. For example, suppose you've contributed the maximum to your TFSA for the year, but your spouse has not contributed anything, as he or she doesn't have extra cash to invest in a TFSA this year. The solution: Give your spouse the money to contribute to maximize your family's savings. The earnings will accumulate tax-free and your spouse can withdraw the funds at any time, also tax-free.
I can use my TFSA as a "rainy-day" fund, putting money in and taking it out whenever I need to, so long as my account balance doesn't exceed my contribution limit for the year.
False. TFSAs are not meant to be used for frequent withdrawals and contributions. If you take money out of your TFSA, you must wait until the following calendar year to replace it. Otherwise, you could face an over-contribution penalty.
For example, if you withdraw $2,000 this year, that amount will be added to your contribution room for 2013. If you have already reached your contribution limit for 2012 when you make your withdrawal, putting $2,000 back before the end of the year would be an over contribution.
Your CIBC Financial Advisor can help you maximize your TFSA contributions and choose the tax-advantaged investment solutions that are right for you.