Avoid These Four Killer TFSA Mistakes

These are the four biggest TFSA mistakes I see. Avoid them.

💈💈💈

TFSAs are fantastic! If you don’t like TFSAs, you are a weirdo. If your financial advisor doesn’t like TFSAs… Should they always be your first choice if you, like most people can’t do this all? Nope. For example, I’d rather you get rid of any credit-card balances first. And, of course, if you have access to a group RRSP with employer matching… c’mon.

Free money, free big money. But TFSAs are amazing. Now I’ve seen a lot of TFSA accounts over the years — I’m old — I notice some of the same mistakes pop up again and again. Let’s quickly go through the top four. 1) This one is sooo common. People dip into their TFSA for non-emergencies and rationalize,

“No worries. Tell the barber to cool it, I’ll just put that money back in next year along with my annual contribution.” Guess what? The money doesn’t get back in there. Or at least not for many years. People’s intentions are good but life happens. The foregone compounding is incredibly costly. On occasion, yes, it makes sense, but try really hard not to raid your TFSA.

If you’re tempted, call me and I’ll yell at you. 2) People sometimes withdraw and do put it back in — woo-hoo! — but they put it back in in the same year. Not good. Penalty time. If you take $10,000 out this year, for example, and then put $17,000 in later this year — the withdrawn $10,000 and your new contribution of $7,000 — oops,

that’s an over contribution of $10,000 to a penalty of 1% per month until withdrawn. You can put it back in, of course, with no penalty, but you have to do it in the calendar year after the withdrawal or later. Both the government and the financial industry have actually done a very good job of getting this rule out there,

but people still screw it up a lot. 3) This one really frustrates me. As mentioned in a previous video, so many people are leaving their TFSA dollars just sitting in a savings account, accepting a very low rate of return. Year after year after year. Geez! Hey, if the TFSA is your emergency fund or your down payment fund, I get it. You need liquidity and want to avoid risk.

But I see this a nutty amount from people who are using their TFSAs to build a retirement fund. A retirement that’s 20, 30, and 40 years away. Talk to an investment advisor, a financial planner, about better ways to invest that money for long-term growth. It can make a gigantic difference to your average annual returns over the years, and therefore to how big your retirement fund becomes.

This is key! 4) On the flip side of that mistake, I’m seeing way too many younger people, mostly men, investing in crazy speculative securities, hoping to catch lightning in a bottle. And guess what? Their TFSAs are indeed getting hit by lightning, but not quite the way they had hoped. Meme stocks. Securities hyped in chat rooms. Hot tips from their barber.

Do not listen to barbers! TFSAs… they are wonderful. Truly wonderful. Take full advantage of them.