The idea behind the Snowball Effect is to turn a TFSA into a pension plan that increases its tax free income every year.

The partners purchase high quality, blue chip, dividend bearing equities and funds inside a TFSA with the goal of income - currently their Snowball mandate is yielding about 6.5%. Here's how it works and why it’s important:

Let’s say Mrs. Smith has a TFSA worth $100K of equity mutual funds and a cash account with taxable securities. George and Scott replace those funds in the TFSA with their pre-selected Snowball securities on January 1, 2022. At 6.5%, $100K would generate $6,500 worth of tax free income. This income is sent to Mrs. Smith either monthly or annually.

The TFSA rules say that on January 1, 2023 Mrs. Smith can contribute another $6K, plus anything taken out the previous year (in this case, $6,500). The partners move a total of $12,500 (6K + $6,500) from Mrs. Smith's non registered, taxable, account to her TFSA. This sum is then invested in the existing Snowball securities currently in the TFSA.

Assuming the original $100K has not fluctuated (and chances are it will somewhat), there is now $112,500 earning 6.5%. This translates into $7,313 worth of tax free income to Mrs. Smith in 2023. This income is sent to Mrs. Smith either monthly or annually. On January 1, 2024, Mrs. Smith can again contribute another $6K plus $7,313 (what she took out in 2023) for a total of $13,313. Now, the TFSA (again assuming market values stay the same) will be $125,813 and at 6.5% = Mrs. Smith can look forward to $8,178 of tax free income in 2024. See the snowball?

Each of our clients we’ve agreed to work with because we are confident we can make a positive difference in their financial life.

George & Scott