4 Things You Should Know About Your TFSA to Maximize Your Money


4 Things You Should Know About Your TFSA to Maximize Your Money

Tax-free savings account (TFSA) was officially introduced in the federal budget of 2008. It came into effect on the 1st of January, 2009 and become an integral part of financial planning in Canada. The lifetime contribution limit under TFSA is set to reach $52 thousand in 2017, provided that you were at the age of 18 years when it came into existence.

 TFSAs have transformed Canada by becoming portfolios unto themselves. These help eligible retired citizens make certain gains which are free from any tax and so are the withdrawals. People can use the gains to deal with unexpected financial expenses. More importantly, the money obtained is not regarded as income in terms of the clawback for Old Age Security.

 Despite so many advantages, the biggest issues with TFSAs is that most Canadians do not actively invest in them. Since these were marked as saving accounts, too many individuals miss out on the tax-free compounding potential. With these things in mind and the next year’s limit increase upon us, you must know the following four facts about TFSAs.

1.   Eligible Investments

Everything that is permitted in an RRSP can also go into a TFSA in most cases. This includes cash, guaranteed investment certificates, mutual funds, bonds, securities listed on a designated stock exchange and shares of small businesses. One can also contribute foreign funds, however, they will be converted into Canadian dollars which cannot cross your contribution limit for TFSA.

2.   Unutilized Room

Even upon Tories increasing the yearly limit, more than 55 per cent people are not aware of the contribution limit. In fact, as per the Canada Revenue Agency’s documents, only one in five Canadian citizens with a TFSA have made an effort to benefit from the increased limit.

3.   Canada Revenue Agency still conducts TFSA audits

The Canada Revenue Agency still continues to investigate some (hardly one per cent) Canadians having high balances in their accounts. Traders who are active in speculative products often seem to be the major trigger.

4.   Withdrawal and Redeposit Rules

One can easily withdraw any amount from their TFSA. This does not affect their total amount of contributions already made for the year. Repayment rules are often tricky. If an individual decides to re-contribute or replace all or a portion of their withdrawals into their TFSA in the same year, they can do so only when there is a TFSA contribution room. Alternatively, you have to wait until the 1st of January next year. Over-contribution carries a penalty of 1% of the highest excess TFSA amount in the month, i.e. for every month that the excess funds remain in the account.


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