I’ve been playing with it since the inception which was somewhere in February I think… I quickly realized that if you’re a very good trader, you can make insane tax free profits. Just put $100,000 in the account - clearly beyond the $5,000 limit for 2009. Pay 1% fee on the excess contribution - $950 every month. Make more than $950/month on your $100,000 deposit. All profit 100% tax free. If only I was good at timing markets, and had a decent chunk of spare money…
Hmm are you sure they allow this loophole? If so…good idea.
the risk involved is disgusting… reason being, that past losses cannot be carried forward, as gains AND losses are tax free. losing 11.4% a year under any scenario is intolerable. risk/return doesn’t change just because its tax-free. why not just try and turn the 5K into 100K and then use that to make RRSP contributions and get even more back. i’ll be opening one in June/July with 5K and try to do the above.
i just worked it out, and its mathematically inferior, hehe. assuming two scenarios: 1) $100,000 fully taxable at 23.96% capital gains (highest bracket) 2) $100,000 in a TFSA with $11,400 in charges every year Gain 100% over a year: 1) EV = 176,040 2) EV = 188,600 Lose 50% over a year: 1) EV = 61,980 2) EV = 38,600 Total EV: 1) 119,010 2) 113,600 does not make any sense to take on the charge. horrible, horrible strategy. why not just use the 5K to buy way OTM options which will act as if you have 100K in the account and not take the 11.4K a year charge?
Options are not an eligible investment for TFSA. You will get taxed on gains you make with these things, and probably pay some other penatly so you better trade options in regular brokerage account.
Also, are you sure that’s the highest tax rate that would apply on your profits (if you were to trade daily/weekly, that doesn’t sound like a capital gain to me)
So what is the best leverage I can get with 5k? It’s all or nothing for me. Matt, we need another distressed play like Nova available to us
I’m broke and want to get out of debt before investing.
TheAliMan Wrote: ------------------------------------------------------- > So what is the best leverage I can get with 5k? > It’s all or nothing for me. Matt, we need another > distressed play like Nova available to us yeah, too bad everything in the oil sands is now super expensive (see: OPC hitting $3.65 at one point today).
kblade: many things… https://www.credentialdirect.com/OpenAccount/TaxFreeSavingsAccount.aspx says you can trade anything you want here… and where i work its the same also so i’m sure going long options is allowed. and yes, 23.96% is the wrong number. this number is for eligible dividends. the capital gains number is actually lower at 23.2% (for ontario at least, but all are similar to this number). so this number would make the above EVs even more in favour of using options over the 100k solution. and ali, the leverage you get with an option is up to you. buy some GS $20 June puts. if it goes bankrupt you’re looking at 300x your dough. haha. you never know… but realistically, you could buy some PBG 2010 options at $80 or something and i’m sure you’d get 10x leverage on that at least.
I can trade options in my TD Waterhouse TFSA. I would hope that TD would not give you the option if they weren’t eligible.
Dang I never heard of that broker. Hmm… No annual fee No fee to withdrawal from your account but their trading fees are slightly better than what the big banks are offering Thanks for the wake up call on the options, I was under the impression they didn’t work in TFSA.
158mdk Wrote: ------------------------------------------------------- > I can trade options in my TD Waterhouse TFSA. I > would hope that TD would not give you the option > if they weren’t eligible. I’m at TD as well which is why I mentioned option trading. But is your regular trading account enabled for option trading? You might have to do that in order to trade options in TFSA.
My cash & RRSP accounts are enabled for options. When I filled out the form to open the TFSA there was a question that asked if i want to be able to trade options. I said yes.
Yes I asked for options too but apparantly they don’t allow trading derviatives or on margin if you have no experience in trading before…
TFSA can hold the same investments as your RRSP In other countries that have introduced this a lot of savings have moved to them If you are trading outside of your tax sheltered account watch to see if your income gets deemed as regular income not just capital gains/losses for tax purposes.