Pape - Tax-free savings accounts: a guide to TFSAs and how they can make you rich

TAX-FREE SAVINGS ACCOUNTS

PENGUIN CANADA

TAX-FREE SAVINGS ACCOUNTS

GORDON PAPE is Canadas best known financial author and the publisher of five investment newsletters, including The Income Investor, Mutual Funds Update, The Canada Report, and The Internet Wealth Builder. He is the author of several national bestsellers, including Sleep-Easy Investing and The Retirement Time Bomb, and has spoken at hundreds of seminars in Canada and the United States. Pape is frequently quoted in the media and is a popular guest on radio and television shows. His website is located at www.BuildingWealth.ca.

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A Guide to TFSAs and How They Can Make You Rich

Gordon Pape

PENGUIN CANADA

Published by the Penguin Group

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First published 2009

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Copyright Gordon Pape Enterprises Ltd., 2009

All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.

This publication contains the opinions and ideas of its author and is designed to provide useful advice in regard to the subject matter covered. The author and publisher are not engaged in rendering legal, accounting, or other professional services in this publication. This publication is not intended to provide a basis for action in particular circumstances without consideration by a competent professional. The author and publisher expressly disclaim any responsibility for any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.

Manufactured in Canada.

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ISBN: 978-0-14-317196-6

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To the memory of Shirley Petersonone of the warmest,
kindest, most gracious ladies my wife and I have ever had
the privilege to know. She is greatly missed by all those
who were touched by her remarkable life.

Gordon and Shirley Pape

When I finished writing Sleep-Easy Investing in the summer of 2007, I sincerely believed it would be my last financial book.

Over a 20-year span, starting with Building Wealth in 1987, I authored or co-authored more than 40 books on investing and personal finance, including annual guides to mutual funds and Registered Retirement Savings Plans (RRSPs) from 1990 to 2004. Frankly, I was tired. Even more important, I felt there was nothing more I could usefully contribute.

Thats why in the acknowledgments to Sleep-Easy Investing I thanked all my faithful readers over the years and said goodbye. Fortunately, I took a cue from J.K. Rowling and left the door open just a crack.

So here I am, barely 18 months later, with yet another book. What changed?

Tax-Free Savings Accounts are what changed. In the summer of 2007, few people seriously expected we would see such a radical transformation of the Canadian investment landscape from the Conservative government. When Finance Minister Jim Flaherty introduced the program in his 2008 Budget Speech, he handed the Canadian people the most powerful wealth-creating opportunity since the introduction of RRSPs by John Diefenbaker half a century ago.

Unfortunately, these new plans have been burdened with the awkward acronym of TFSA, which I have taken to pronouncing as tifsa for purposes of verbal shorthand. Whether the pronunciation catches on is immaterial, of course. No one can formulate a word from RRSP, but just look at how important it has become in our investment universe.

Theres no doubt in my mind that a decade from now, Canadians will have socked away hundreds of millions of dollars in TFSA plans. Finance ministers in future cash-strapped governments may find themselves wondering whatever possessed the Conservatives to introduce a program that enabled people to shelter so much money from the Canada Revenue Agencynot just for many years, as with RRSPs, but forever!

In fact, the time may come when TFSAs surpass RRSPs in total assets, although that would take a few decades.

These accounts enable every Canadian to reduce his or her lifetime tax bill by many thousands of dollars. Younger people will be the biggest beneficiaries, and Finance Minister Jim Flaherty told the Montreal meeting of the International Economic Forum of the Americas in June 2008 that the brightest of them had already figured that out.