Yahoo Finance Tax-loss selling, TFSA withdrawal: What you need to know before year-end
The holidays may not be the time of year you want to spend time with your financial advisor, but there are some deadlines and decisions to consider before the new year starts.
Take advantage of tax-loss selling
Tax-loss harvesting is when you sell investments that you've lost money on and claim it against capital gains. It works by intentionally selling underperforming stocks to use the losses to offset their taxable capital gains for the year. Tax-loss harvesting can only be done in non-registered accounts.
Jason Pereira, senior financial planner at Woodgate Financial and president of the Financial Planning Association of Canada, says if there are losses that can be taken advantage of, that needs to be done by the end of the year.
"It's not the date that you sell that matters, it's the date that it settles," Pereira said in an interview with Yahoo Finance Canada. Because it takes three days for sales to settle, the deadline for making the trade is actually on Dec. 27.
When it comes to tax-loss selling, investors should note that they cannot buy that same security in the 30-day period before and after the stock sale, or else it's considered a superficial loss and cannot be used to offset capital gains.
Planning to withdraw from your TFSA?
There are no set deadlines when it comes to your tax-free savings account (TFSA). However, the money you withdraw over the course of a year you will get back in contribution room the following year.
"Basically what that means is if you're planning on taking out a bunch of money in January anyway, you might as well do it in December, because you'll get the room back this January as opposed to the following year," Pereira said.
But he adds that people should not confuse that with new contribution room, and keep track of how much contribution room they have available. While you can check your contribution room online, Pereira says that figure is usually not updated until the spring, so it may not be accurate when you take a look at it at the start of the year.
For example, if you check on Jan. 1 for how much contribution room you have, it may show $13,500 ($7,000 limit for 2024, and $6,500 for 2023), even if you contributed $6,500 in 2023.
"You should verify if they have your deposits in there for the previous year," Pereira said.
First Home Savings Account
If you're in the market to buy a home for the first time and are considering a First Home Savings Account, it's best to open it now.
Aspiring home buyers can put up to $40,000 into their FHSA. The annual contribution limit is capped at $8,000, so it will take five years before account users will be able to max out their accounts.
"You have to have the account open in the first place," Pereira said. "Just make the minimum contribution necessary to get the account open."
Parents: Watch the Registered Education Savings Plan deadline
The deadline to contribute to a Registered Education Savings Plan is Dec. 31 in order to receive grant money from the government. Through the Canada Education Savings Grant, the government will provide 20 per cent of annual contributions made in an RESP up to $500 per year, meaning parents will have to contribute $2,500 a year to max out the grant. The total grant amount that can be earned in an RESP maxes out at $7,200.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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