TFSA Account Offerings & Questions

[IdOp]

No, there aren’t ... but keep in mind that article was written by a Globe and Mail reporter ... hardly an beacon of accuracy ... they also falsely reported that “Finance instructed the Canada Revenue Agency to charge a levy of 100 per cent on overcontributions.”, which is not the case ... It is poor journalism.

Thanks for clarifying cardhu, that was pretty much what I figured.

Though to be fair, G&M didn’t say there was a penalty, they only said early withdrawals are discouraged by heavy taxes ... what they’re referring to is simply that RRSP withdrawals are taxed as ordinary income, and for most people withdrawals taken prior to retirement will face a higher tax rate than withdrawals taken during retirement.

That's a very reasonable interpretation. Though with that understanding, there's still another part of what they said about swaps in that paragraph that doesn't make sense to me. That is, the idea that transferring large gains from an RSP, say, to a TFSA is beneficial. Suppose you bought a stock for $500 in the RSP and it was a 10-bagger. It's now worth $5000 and you swap it for $5000 cash in the TFSA as suggested in the article. I don't see any benefit from this at all. More poor journalism?

[bwalter]

That is, the idea that transferring large gains from an RSP, say, to a TFSA is beneficial. Suppose you bought a stock for $500 in the RSP and it was a 10-bagger. It's now worth $5000 and you swap it for $5000 cash in the TFSA as suggested in the article. I don't see any benefit from this at all. More poor journalism?

I think it may be related to how the value of the swap is determined. It's my understanding that you can choose any value at which the stock traded that day. For a particularly volatile stock, you could value it at the low end when you swap it in. Then potentially you could swap it back to your RRSP on another day using a higher valuation.

E.g.
Security XYZ traded Day 1 in a range of $10-$12 so you swap 500 shares of XYZ from your RRSP to TFSA and $5000 from your TFSA into your RRSP.
Day 2 XYZ trades in a range of $9-$11 so you swap 500 shares of XYZ from your TFSA into your RRSP and $5500 into your TFSA. You've just effectively moved $500 into your TFSA from your RRSP (note that the security could actually have closed lower on the second so it's the fact that you get to cherry pick the FMV that allows you to game it so you'll usually win. All you need to win at this game is for the security's highest value on Day 2 to be higher than the lowest value on Day 1.)

Of course if I'm wrong about being able to pick the FMV for the swap as any value the security traded at on that day, then my explanation is nonsense.

[cardhu]

bwalter beat me to the punch ... oh well, here it is in slightly different words.

Repeated back and forth swaps could (under the old rules) drain money from the RRSP to the TFSA without triggering any taxable withdrawals .... find a stock that trades within a range ... swap the shares from the RRSP to the TFSA when the stock is near the top of the range, & swap them back when the price is near the bottom of the range ... rinse & repeat ... boost the benefit by exploiting the option to choose your transaction price for each swap arrangement ... choose it high in one direction, choose it low in the other direction.

This would have had to have been combined with deliberate TFSA overcontributions to make it pay ... not worthwhile with only a $5k stake.

Then there is the option box-spread marty referred to upthread. I didn't look closely at it, but I think it would be doable from an RRSP??

[marty123]

Then there is the option box-spread marty referred to upthread. I didn't look closely at it, but I think it would be doable from an RRSP??

From a taxable account to a TFSA, you can only gain TFSA contribution room. It's doable from an RRSP too, and the added benefit is that it effectively does empty the RRSP without triggering tax (until this week's change).

The box-spread (over the stock) had 3 significant benefits:

- The 2 parts of the box-spread are both highly volatile, which helps moving funds faster and with less capital
- The 2 parts of the box-spread may each be volatile, but when combined, they are as non-volatile as cash. You don't need to pick a volatile stock and hope for the best. It made the scheme loss-proof.
- I think most brokers charge only 1 swapping fee even when you move more than 1 security, so there is no extra cost for the increased volatility and decreased risk.

You could technically double your gain by holding and swapping a different box-spread in each account (TFSA = $14 call and $20 put; RRSP = $13 call and $21 put), and cherry picking the FMV. You could hold on to the box-spread for months at a time without fluctuating your portfolio value, and only bother with swapping on very volatile days, while still collecting the implied interest rate of the box-spread.

Technically, there appears to be nothing in this week's announcement preventing someone from swapping back and forth between an RRSP and a taxable account as a way to withdraw funds without taxes. I'm puzzled - unless they are planning on catching these under a different rule (GAAR?).

This would have had to have been combined with deliberate TFSA overcontributions to make it pay ... not worthwhile with only a $5k stake.

Unless our government thinks ahead. In 3 months, it will be $10K, and in 3 years, $25K.

[cardhu]

Unless our government thinks ahead. In 3 months, it will be $10K, and in 3 years, $25K.

True, but the Finance paper implies people have already been doing this.

[bwalter]

while still collecting the implied interest rate of the box-spread.

Marty, I did some reading into box spreads, and what you describe is only 1/2 of the box spread. For a full box spread which captures the interest rate of the spread I believe you'd also need to sell OTM call and ITM put (which wouldn't be possible in a registered account.)

While the 1/2 you described is as non-volatile as cash, I believe you've actually got the implied interest rate causing drag on both options you've purchased (which is usually more than offset by the options sold) rather than collecting any implied interest. Of course if your primary goal is to exploit the TFSA/RRSP the drag probably isn't a big deal.

Edit, I suppose you could have the other 1/2 of the box spread in an unregistered account to eliminate the interest drag, though it would result in taxable gains. Or maybe this is part of why/how they were gaming with unqualified investments in a TFSA.

[IdOp]

bwalter and cardhu, thanks for the comments on my question. I understand about the repeated shifts back and forth at changing values, in fact it was described in this post up-thread . That is something CRA is targeting, but it was not described that way in the GlobeInvestor article; they seemed to be suggesting something else (non-sensical) entirely.

[marty123]

While the 1/2 you described is as non-volatile as cash, I believe you've actually got the implied interest rate causing drag on both options you've purchased (which is usually more than offset by the options sold) rather than collecting any implied interest. Of course if your primary goal is to exploit the TFSA/RRSP the drag probably isn't a big deal.

Edit, I suppose you could have the other 1/2 of the box spread in an unregistered account to eliminate the interest drag, though it would result in taxable gains. Or maybe this is part of why/how they were gaming with unqualified investments in a TFSA.

Yes, you'd have to sell rather than buy in order to collect what is probably 2-3% implied interest these days. The drag on buying vs selling would be the reverse: a cost of 2-3% /yr, which compared to the 1% monthly penalty and the potential risk-free gains, is small. But thanks for the correction.

I think you only need 2 positions (buy one put + buy one call and pay the risk-free interest rate or sell one put and sell one call and receive the risk-free interest), unless the box-spread is used to lend funds to someone.

[Shakespeare]

My new TFSA at RBCDI was approved after a relatively painless process (although significantly more difficult than getting my ING TFSA last year) and the forms with my signature have been mailed in. I didn't bother with a W8BEN because I don't intend to hold US securities. The new account showed up on line this morning. I will transfer in $5K on Monday and use it to buy 100 shares of XSB with the balance in XIU. I see no point in substituting XIC or CRQ for XIU which has the greatest liquidity (important because I will buy an odd lot) and lowest MER.

[newguy]

I will transfer in $5K on Monday

Where you going to get the dough. Ok, too personal? I'm curious as to what you decided about a TFSA being worth it, if you had to take the money from someplace else.

newguy

[Shakespeare]

I sold my NA position in my non-registered account. Thus, I reduce my directly-held bank equities and substitute a 60:40 bond:equity index two-component portfolio, consistent with my plan of gradually and systematically reducing equity risk as I get older.

[Pickles]

I will transfer in $5K on Monday

Where you going to get the dough. Ok, too personal? I'm curious as to what you decided about a TFSA being worth it, if you had to take the money from someplace else.

newguy

Why is a TFSA worth it? The income from your investment is tax free. What's not to understand?

I withdrew all but 66 cents from my ING TFSA earlier this week. I will be opening a new TFSA at BMOIL so I can have more choice for investments.

[Shakespeare]

What's not to understand?

That, since I am in withdrawal phase, I have to pay tax on the TFSA contribution. So this year the funds came from a stock which had a very small capital gain. See viewtopic.php?f=30&t=110701 .

[Pickles]

Gotcha. I was reading this thread in isolation of the other one.

[CROCKD]

This question pertains to the mechanics of how the TFSA works.

I understand that if I withdraw say $5k from a TFSA (lets call it TFSA#1, I will still have that room to redeposit $5k to a TFSA. Does that have to go back to the same TFSA#1 or can it be deposited in TFSA#2. However I understand that one must wait till the next calender year to redeposit funds.
In other words can this be used as a device for not having to make an elected transfer and paying transfer fees to close TFSA#1.

[Norbert Schlenker]

It can go into a new TFSA.

Is there some reason to believe that financial institutions won't impose withdrawal fees as large as transfer fees, though?

[Peculiar_Investor]

Is there some reason to believe that financial institutions won't impose withdrawal fees as large as transfer fees, though?

Only if you believe in the Easter Bunny and Santa Claus

[marty123]

It can go into a new TFSA.

Is there some reason to believe that financial institutions won't impose withdrawal fees as large as transfer fees, though?

Or a $50/yr account inactivity fee until you're willing to pay the $125 close-out fee.
Or a $50/yr account management fee for balances under $XXXX

[Pickles]

It can go into a new TFSA.

Is there some reason to believe that financial institutions won't impose withdrawal fees as large as transfer fees, though?

ING charges no fees.

[queerasmoi]

Credential did not charge anything for withdrawing cash from my investment TFSA.

[Bylo Selhi]

Or a $50/yr account inactivity fee until you're willing to pay the $125 close-out fee.
Or a $50/yr account management fee for balances under $XXXX

TFSA = Tax Free Savings Account. If instead you use it as a brokerage account, especially with a low $5k or $10k balance, why shouldn't the brokers charge accordingly?

ING charges no fees.

The difference between Ally's TFSA interest rate (2%) and ING's (1.2% once the temporary promo ends) is 0.8%. On $10k, that's a "fee" of $80/year

[Pickles]

Or a $50/yr account inactivity fee until you're willing to pay the $125 close-out fee.
Or a $50/yr account management fee for balances under $XXXX

TFSA = Tax Free Savings Account. If instead you use it as a brokerage account, especially with a low $5k or $10k balance, why shouldn't the brokers charge accordingly?

ING charges no fees.

The difference between Ally's TFSA interest rate (2%) and ING's (1.2% once the temporary promo ends) is 0.8%. On $10k, that's a "fee" of $80/year

Bylo, I know the difference between 2 and 1.2 is 0.8. But this tells me nothing about how much I will gain/lose by holding my TFSA in ING instead of Ally. Currently ING is paying a 50% higher interest rate than Ally. Neither ING nor Ally have guaranteed their current rates will remain the same all year. There is no basis, either, to assume that if ING lowers its interest rate, it will lower it to 1.2%

So your suggestion that ING is charging a "fee" of $80 per year is completely unfounded. Using your logic, Ally is charging a $100 fee for the privilege of receiving a lower interest rate. And, at least, my calculation is based on assuming actual rates, not possible rates are maintained for one year.

[BRIAN5000]

CBD and XCR are such thin traders I wonder if these will ever catch on.

BMO has two option's that I'm trying to get more info on,no luck yet. They are an ETF of ETF's. One Short term, one long term $25,000 min, one trade. How would BMO make any money on these?

Lipper Leader ETF Short Term Portfolio
Lipper Leader ETF Long Term Portfolio

Can't find the ETF's they use, Mers etc, BMO is having trouble locating info too.

[Bylo Selhi]

My post was flagged with . Of course this is all speculative. My point really is that unless you keep your money in a TFSA account that pays the highest listed interest rate (assuming everyone is CDIC insured or equivalent) you're paying a "fee" in the form of forgone interest.

Note: At the time I posted above (9:04 EST) I'd assumed that ING had ended their 3% promo on 31Dec09 and was now paying their standard 1.2%, allso that Ally was paying their standard 2% on cash. As it happened, at 10:03 this morning (based on their timestamp), ING sent me an e-mail to announce that they're paying 3% on TFSAs "subject to change" (my interpretation: until TFSA/RRSP season ends.) It's, er, interesting that ING's paying 3% on TFSAs but only 1.2% on RRSPs. I'd have thought that since RRSP withdrawals are subject to tax they'd be at least as captive as in TFSAs and therefore ING would equally want to steer funds there. Perhaps the reason is that with TFSAs being limited to $10k (2009+2010) their "exposure" to paying 3% is limited compared to RRSPs, where someone could an account several times that size.

[Pickles]

My post was flagged with .

Actually, I missed seeing the little jaundiced guy with the mumps. However, the post was just too outrageous to let pass.

Note: At the time I posted above (9:04 EST) I'd assumed that ING had ended their 3% promo on 31Dec09 and was now paying their standard 1.2%, allso that Ally was paying their standard 2% on cash.

If you had read the first post in the savings 2010 thread, you'd have seen that the 3%interest rate on the TFSA began on January 1, 2010. The rate in December was 1.2%. I know. I had my TFSA there until New Year's Eve when I withdrew it, only to put it back in plus another $5000 in early January. If they lower the rate to a non-competitive rate, I'll just transfer all but a dollar to a new account. It's not that hard and, as I pointed out up thread, ING charges no fees.

So, to summarize, my daily interest TFSA is currently earning the interest rate paid out to most 4 year GICs (and ING's 5 year GIC), but I have complete flexibility to "get at my money" or transfer it to a better investment if I decide to lock the money in elsewhere at a later date. Within the ING family, if GIC rates rise, I can always take advantage of them without locking in since ING GICs are cashable.

It's, er, interesting that ING's paying 3% on TFSAs but only 1.2% on RRSPs. I'd have thought that since RRSP withdrawals are subject to tax they'd be at least as captive as in TFSAs and therefore ING would equally want to steer funds there. Perhaps the reason is that with TFSAs being limited to $10k (2009+2010) their "exposure" to paying 3% is limited compared to RRSPs, where someone could an account several times that size.

Actually, ING is paying 3% on 90 day RRSPs, the same rate as they are paying on their 5 year GICs. It was a no-brainer to transfer the balance in my RRSP savings account into a 90 day certificate.

I'd say ING is covering most of the bases pretty well except for its non-registered accounts where they currently lag. I expect that to change shortly, but in the meantime, my GICs are earning an average of 3.75%, so I'm not worried.