A retired Advisor’s Open Letter to Bill Morneau on expanding TFSA

Finance Minister Bill Morneau (bmorneau.liberal.ca)

(To:) Hon. Bill Morneau, Minister of Finance,
House of Commons, Ottawa.

Dear Hon. Minister,

Thank you for your response to my previous letter. I am a strong believer in an enlarged Tax-free Savings Account (TFSA) and have NINE reasons for that belief through my experience as an IA (Investment Advisor).

I think you will agree that the larger TFSA makes retirement savings fair for all levels of Canadians incomes, but helps those who need it most as there is little RRSP deduction benefit for low-income Canadians. I think your background experience will lend itself to agreeing with my nine reasons for restoring the $10,000 TFSA.

Restore the $10,000 TFSA

The $10,000 TFSA [the previous annual contribution level] is the most profound and beneficial social program created in Canada’s 21st century. It benefits the young, seniors and the less fortunate as well as the well off. Its principal benefit is a meaningful and manageable amount of money which can be used as a saving vehicle and a retirement savings account.

1.) It is especially beneficial to the non-working spouse, by enabling a savings and retirement account not requiring a monthly pay cheque and its commensurate income tax and tax deductions. This was the principal reason for the Americas Roth IRA, (ROTH account withdrawals are tax free, but after the age of 58.)

2.) The larger TFSA amount is a meaningful savings target by today’s standards in that $400,000 can be accumulated over 40 years of adult life.

3.) The amount is manageable allowing a significant investment each year, wherein a discount brokerage account, the fee for investing $10,000 or even $100,000 is $10, an inconsequential MER as compared to pension funds like CPP at +1.07 MER (Management Expense Ratio.)

4.) The potential of a larger tax free investment account will incentivize Canadians to become educated in investing and saving for retirement much as the $7,200 federal grants to RESPs, triggered massive investing in education savings. Investment education should be a government priority.

5.) TFSAs can be passed on to siblings or others where they have not been able to save over their lifetimes but now have accumulated TFSA room, allowing a larger inheritance or even cash from the sale of their home upon retirement into a tax-protected account with subsequent tax free income accruing.

6.) Pension plan assets die with the death of a recipient. There is no cash surrender value granted to an estate from 40 years of contributions to CPP for example. (CPP expansion is not needed where the $10K TFSA is to be restored.)

7.) There is a concern that the wealthy will benefit by a larger TFSA. Keep in mind that the 20% wealthy income earners in Canada pay more than 80% of Canada’s $150 billion personal income tax and also lose 100% of OAS through claw back , plus higher income tax rates for 2016.

8.) RRSP savings are of little benefit to low-income Canadians, because of minimal tax reduction for contributions and the possibility of larger income tax payments when funds are withdrawn at retirement.

9.) Tax free savings accounts enable Canadians to experience tax free capital gains, as do the three quarters of Canadians who are home owners.

The Liberal party has a reputation for social responsibility. Keep that reputation intact by leaving the TFSA contributions at $10,000.