Yahoo Finance TFSA Investors : 1 Important Thing to Remember to Do Before 2020!
We’re just weeks away from a new year, and for investors, it could be a very busy time. Selling underperforming stocks for tax purposes is always a popular pastime for investors who are looking to lock in capital losses. That’s not applicable inside of a Tax-Free Savings Account (TFSA), since gains and losses in there on eligible investments are not subject to taxes. However, that doesn’t mean that TFSA investors don’t have to make some important year-end decisions of their own.
One of the most important things for investors to remember is that the end of the year is an important one for TFSA holders, because the beginning of a new year is when any withdrawals are added back to your balance. If you withdrew funds from your TFSA on January 1, the contribution room doesn’t get added back until the beginning of the next calendar year. That’s in addition to the $6,000 in contribution room that investors will have added to their TFSA at the beginning of 2020.
Why does this matter?
If you’re planning to take money out of your TFSA early in 2020 and you plan to replenish the funds later in the year, you may be better off taking those funds out before 2020 arrives. By withdrawing the funds you need this month, that will ensure that your TFSA contribution room as a result of those withdrawals will be replenished on January 1, 2020. If you wait until after the new year, then the replenishment won’t take place until 2021.
This will only matter if you plan on re-investing the funds at some point during 2020. If you don’t plan to re-contribute during the year, then it won’t matter. However, it’s an important consideration and decision for investors to make before the year ends, because if you withdraw and re-contribute funds within 2020, you could end up overcontributing and face costly penalties from the Canada Revenue Agency.
Stepping away from the markets may not be a bad idea
If you do have a pressing expense that may cost you more than the new $6,000 contribution room will add in the new year, it could be a good idea to take the money out today. Many stocks are overvalued, and investors may want to wait until at least January before buying back into the markets.
Bank stocks like Bank of Montreal (TSX:BMO)(NYSE:BMO) could look very cheap in the new year. With earnings season not looking very strong for bank stocks this past quarter, there could be a lot more selling in the weeks and months to come of not just BMO but other bank stocks as well.
Currently, BMO pays investors a safe dividend yield of 4.2% and the further the stock declines, the higher that payout will go. The bank raised its dividend payments earlier in the year, and it’s likely to continue to do so, making it a great option for long-term investors who want some recurring income. While the stock is nowhere near its 52-week low of $86.25, it could be a steal of a deal if the stock falls below $90. The last time it closed that low was back in late August, and it only lasted for a short amount of time before the stock took off.
The lower BMO and other bank stocks go, the better their dividend yields look, and the more opportunity there is for investors to benefit from capital appreciation as well.
More reading
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